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Frontline Ltd (FRO) Q1 2019 Earnings Call Transcript

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Frontline Ltd (NYSE: FRO)
Q1 2019 Earnings Call
May 16, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen, thank you for standing by and welcome to today's Q1 2019 Frontline Limited Earnings Conference Call. At this time all participants are on a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions). I must advise you that this conference is being recorded today, Thursday, 16th May 2019 and I would now like to turn the conference over to your first speaker today, Robert Macleod. Please go ahead, sir.

Robert Hvide Macleod -- Director and Chief Executive Officer of Frontline Management AS

Thank you very much. Good morning and good afternoon. Thank you all very much for dialing into Frontline's first quarter earnings call. I will start the call by briefly going through the highlights of the quarter, following that, Inger will run us through the financials. We'll then look at the Q1 and to the Q2 spot earnings and then touch on the exciting and important factors that will govern the market going forward. The call will be concluded by taking your questions.

Let's get started, please. And we'll have a quick look at some of the company highlights. Net income for the quarter was $40 million. Adjusted for non-cash items we made $45.5 million or $0.27 per share. For the VLCCs, the spot TCE was fully $35,700 in the quarter. Q2 bookings are at a healthy level, 63% of the days are booked at $34,800.

Please note that Inger will make some important comments on this later. I'll get back to Q1 and Q2 earnings of Suezmaxes and Aframaxes. We have increased our ownership in FMSI to 28.9% and our planning for 2020 is on track. Our VLCC new building Front Defender delivered in January and Front Discovery was delivered in April. With that, I will hand the call to Inger to take us through the financials in detail.

Inger M. Klemp -- Chief Financial Officer of Frontline Management AS

Thanks, Robert, and good morning and good afternoon, ladies and gentlemen. Let's turn to Slide 4 and 5 and look at the financial highlights and income statement. Frontline achieved total operating revenues net of voyage expenses of $141 million and an EBITDA adjusted for certain non-cash items of to $96 million in the first quarter. We report a net income of $40 million equivalent to $0.24 per share and net income adjusted for certain non-cash items of $45.5 million equivalent to $0.27 per share. The non-cash items this quarter consisted of $1.4 million unrealized loss on marketable securities and a $4.1 million loss on derivatives.

The first quarter shows an improvement of $18 million against the adjusted EBITDA of $78 million and an improvement on $19.2 million against adjusted net income of $26.3 million in the fourth quarter of 2018. The improvement in the net income in the first quarter of $19.2 million is mainly explained by an increase in result on time charter basis of $18.4 million due to the increase in spot TCE rates in the first quarter compared to the fourth quarter. As Robert mentioned, the spot times TCE rates VLCC prospectus and the LR2 tankers were $35,700, $28,200, and $24,000 respectively. On February 28, 2019, the company disclosed that the spot TCE of $41,300 per day has been constructed for 84% of the two days (inaudible) in the first quarter.

Due to the limited number of additional laden days at the end of the first quarter, additional revenues booked were limited, and as such the total revenues for the 84% of the two days is constructed and spread over 100% of the days in the quarter resulting in a lower TCE per day by the end of the first quarter. Spot TCE estimates for the second quarter are $34,800 per day contracted for 63% of vessel days for VLCCs. $19,000 contracted for 63% of vessel days for Suezmaxes tankers and $19,500 per day contracted for 55% of vessel days for LR2/Aframax tankers respectively.

These spot estimates are provided using the load-to-discharge method of accounting. The rates quoted are for days currently contracted. The actual rates to be earned in the second quarter of 2019 will therefore depend on the number of additional days that we can contract, and more importantly the number of additional days that each vessel is laden. Therefore, a high number of ballast days at the end of the quarter will limit the amount of additional revenues to be booked based on load-to-discharge accounting principles. We thus expect the spot TCE for the full second quarter will be lower per measure due to the impact of ballast days at the end of the quarter than the estimates given.

Let us then take a look at the balance sheet on Slide 6. The changes to the balance sheet as of March 31, 2019 from December 31, 2018 mainly relate to an increase in cash and cash equivalents of $29 million, which is due to cash generation from operations which partly were offset with repayment of debt.

A decrease in newbuildings of $26 million due to delivery of Front Defender in January. An increase in the (inaudible) $8 million due to the delivery of (inaudible) in January and also depreciation in the quarter. A decrease in vessels under capital lease about $3 million due to the depreciation in the quarter, inclusion of a lease obligation and a right to use assets under operating leases of $16 million due to change in the lease accounting rules.

Net decrease in debt with 9.4 million in the quarter following $65.2 million in repayments and $65.3 million in drawdowns; $29.2 million of these repayments was ordinary repayments of the bank debts and $36 million was a repayment of $275 million Hemen facility in the quarter. A decrease in obligations on the capital leases with $3.2 million due to amortization of property and leases payments and an increase in equity of $14 million representing the net income in the first quarter.

As of March 31, 2019 Frontline had $223 million in cash and cash equivalents, including the undrawn amount of unsecured loan facility, marketable securities and minimum cash requirements. Our remaining newbuilding CapEx requirements amounted to $55.9 million related to the last recent newbuilding that were delivered in April 2019. And we had approximately $59.4 million in debt capacity and then our newbuilding credit facility to take delivery of our (inaudible).

We have no near-term debt maturities. The first debt maturity is in November 2020 when our senior unsecured loan facility are up to $275 million matured. We have drawn down $150 million under this facility and $125 million remains available and undrawn as of March 31, 2019.

Then let's take a closer look at cash breakeven rate and charge cash generation potential on Slide 7. So we estimate average cash cost breakeven rates for the reminder of approximately $24,700 per day for the VLCC, $20,000 per day for the Suezmax tankers, and $16,600 per day for the LR2 tankers. These rates are all in daily rates that other vessels must earn to cover the budgeted operating cost on dry dock, the estimated interest expenses, TC and bareboat hires, installments on loans, G&A expenses.

The reason for the breakeven rates are higher in 2019 than 2018 is that we have included drydock cost for 6 VLCCs, 4 Suezmax tankers and one LR2 tanker in 2019. (Inaudible) lower cash breakeven rates offers a strong downside protection against the low-rate environment and at the same time it creates a great upside potentials in a strengthening tanker market. Every $1,000 per day in achieve base in excess of our cash breakeven rate translates to approximately $19,000 in incremental net income per year or $0.11 per share, which shows the high importance on maintaining our low cash breakeven rates.

In the graph on the right-hand side of the slide, we have shown incremental net income per year and per share, S&G $10,000 per day, $20,000 per day and $30,000 per day in achieve base in excess of our cash breakeven rates effectively.

The operating expenses per day in the first quarter of 2019 were $8,200 per day for the VLCCs, it was $7,100 for the Suezmax tankers, and $7,100 for the LR2 tankers. We did not drydock any vessels in the first quarter and we plan to drydock four VLCCs and one Suezmax tanker in the second quarter of 2019. With this, I leave the word to Robert again.

Robert Hvide Macleod -- Director and Chief Executive Officer of Frontline Management AS

Thank you very much, Inger. I quite like that Slide, so every $10,000 is $188 million.

Inger M. Klemp -- Chief Financial Officer of Frontline Management AS

Yeah.

Robert Hvide Macleod -- Director and Chief Executive Officer of Frontline Management AS

So we're lucky in China. Let's turn to an exciting Slide please, hopefully, we can make that sort of earning potential come alive. Let's look at the key factors that are in play. The market pulled back as we moved through Q1; one exemption was how the spot markets reacted to the sudden increase in US export in February. To me that's clearly a sign that the market is better balanced than the pessimist claim.

There are four factors that have impacted the market recently. First, seasonal refinery maintenance commenced accompanied by unplanned refinery outages in the US. Refinery maintenance has been more pronounced this year in Asia in particular as refiners prepare for IMO 2020.

Next, there is clearly decreased crude volumes in the market due to OPEC cuts and geo factors in Iran, Venezuela, and Libya. As an example, Venezuela production is down to 70% since the first quarter. An additional factor that's also relevant is fleet growth, of course, as many newbuildings hit the water in the early months of the year.

Finally, US crude exports have taken a breather after a prolonged period of consistent growth. Although the market remains soft, we, along with market analysts expect the second half of 2019 to improve significantly. Refiners demand for crude oil will come back as maintenance season ends and IMO 2020 is expected to create incremental demand growth as greater quantities of crude are required to produce low-sulfur fuel. Some reports show that we obviously could see around 1 million barrels of refining capacity return this summer. Also, effective fleet growth is expected to be some what offset by increased drydocking in preparation for IMO 2020 and due to ballast water treatment and requirements as well as an increase in long-term storage activity. The market has been very volatile due to production outages and sanctions in Iran and we expect this volatility to continue.

Next way up, we're already there, good. VLCC orderbook. It is important to note that we already -- that we are currently in one of the highest delivery years for VLCCs seen in recent times. Year-to-date, 26 have entered the market. There will be slippage toward the end of the year like we saw in 2018 and virtually see every year, but we still expect around 55Vs (ph) to deliver in 2019. To balance that, we have what we refer to as a survey pool of over 100 vessels out of which some will be recycled or converted for permanent storage.

Let's move to the last one, please, which is the summary. Oil demand remains strong and this should be evidence when global refineries complete their maintenance and new refineries start production. We also expect OPEC volumes to return to the market both to keep the market supply and to offset decreases in the Iranian exports shut in due to sanctions. The US is well-positioned to be a main source incremental supply to the global market, meaning, ton-mile demand growth may actually outpace demand growth.

Finally, fleet supply shows a good balance between scheduled deliveries and expected phaseout schedule for older vessels. But on the flip side, there will still be a high pace of vessel deliveries this year as scrapping will slow down if the market returns to levels seen earlier this year. Although IMO 2020 will make older vessel even less economical to operate.

A higher oil price could cause demand disruption and combined with trade wars slow global growth. Finally, there is always the chance that IMO 2020 implementation will not proceed as expected. Some earners will try to cheat through regulations but at a small scale. And although we believe in the fuel spread that it will widen as we approach 2020, it could, of course, narrow and diminish scrubber economics.

To conclude, we expect the market to remain volatile but continue to trend higher as the fleet prepares for new regulations and oil volumes return. Crude oil tanker demand will receive a significant boost as crude supply increases in the second half of this year. Although, there are always risk related to slowing global demand, multiple possible market drivers should result in a strong second half of the year.

With that, let's turn over to questions, please, Cass (ph).

Questions and Answers:

Operator

Thank you, ladies and gentlemen, we'll now begin the question-and-answer session. (Operator Instructions). Your first question comes from the line of Randy Gibbon (ph) from Jefferies. Please ask your question.

Christopher Robertson -- Jefferies -- Analyst

Hello, this is Chris Robertson on for Randy. Thanks for taking our call. Just in terms of the OPEC production cuts, I guess, there's been some speculation in the markets recently with some Saudi Arabian news that they might increase production in the coming months. So are you positioning the fleet in anyway to kind of capture that in the next few months? And how are the current security concerns impacting things?

Robert Hvide Macleod -- Director and Chief Executive Officer of Frontline Management AS

So on the OPEC, I'm pretty certain that June meeting will see an increase. But what's going on lately, it's, I've decided to be more sort of let's see what happens. So, yeah, we'll just have to see. I'm convinced that we'll see volumes come back this year. I think the world oil markets simply needs it otherwise the oil price would go to 100-plus and demand will see some destruction for sure. In terms of how we trade in the ships, no, we are not, sort of, got an OPEC increase in mind. We are optimizing as we are triangulating the ships and simply doing the best we can to add as much as possible. So sometimes, if you feel the market is about to turn, then we'll do shorter voyages and we do assessments on a day-to-day basis.

In terms of the security, the situation in the Middle East is obviously, first, with the Yanbu and the Fujira (ph) and then the pipeline. So there's a lot of stuff going on there. So we've heightened the security levels on our ships and -- but we are in actual fact, we're always on the watch out, in the area. So we come well-prepared.

Christopher Robertson -- Jefferies -- Analyst

Got you. Thanks for that. I guess, looking at the scrubber retrofit program, are there any updates there in terms of the full CapEx? Is that still the same as previous guidance? And can you kind of walk us through the cadence of installations, any updates there, and would it be possible to pull any of the retrofits forward in terms of install dates?

Robert Hvide Macleod -- Director and Chief Executive Officer of Frontline Management AS

In terms of the OpEx and the Cap, that, there's no change from our last quarter. In terms of booking more ships, we are looking to bring some forward, given the bad market, some will be docking slightly earlier. And, obviously, being part-owner of a factory means that we don't have any problems getting that supply to the ship, so we're in good position. We have good flexibility when it comes to docking space as well given the size of our group. So we juggle this around. Obviously, when the market is where it is now, this is how you want to be docking.

Christopher Robertson -- Jefferies -- Analyst

Right. Okay, and that makes sense. And, I guess, lastly, are there any floating storage opportunities that are interesting out there in the market or something that you've considered?

Robert Hvide Macleod -- Director and Chief Executive Officer of Frontline Management AS

We have enough fleet given the renewal we've had over recent years. We have very few ships that are actual candidates. So I'd say there's probably only one and it's a 2002 (ph) we'd be able to see. So, in general, we're seeing more questions. There's not a contango-driven storage player out there but there will be surplus product given what's happening here in 1st of January that needs to find a home and being on a ship makes you more flexible than having it on a shore tank where there's not that much availability either. So I think we're going to see floating storage increase and there's going to be blending and so forth and we've already seen part of the Iranian fleet go on storage. So I think where we are now, we're at a low point in, first, the world fleet on storage. It will see an increase this year and I think that will be the substitute and what's going to balance the tanker market or the fleet growth rather than scrapping/recycling.

Christopher Robertson -- Jefferies -- Analyst

Got you. All right. Thanks for taking the questions.

Operator

Thank you. Your next question comes from the line of Greg Lewis from BTIG (ph). Please ask your question.

Gregory Lewis -- BTIG -- Analyst

Yes. Thank you and good afternoon.

Robert Hvide Macleod -- Director and Chief Executive Officer of Frontline Management AS

Hi, Greg.

Inger M. Klemp -- Chief Financial Officer of Frontline Management AS

Hi, Greg.

Gregory Lewis -- BTIG -- Analyst

Rob, could you just talk a little bit about, I mean, as we look at Frontline, I mean, the fleet, I guess, what I'm wondering and I think a lot of people are wondering is, is there plans, I mean, just listening to your cadence, listening to your comments about the market, it seems like Frontline should have a bigger footprint in the market. Is that something that we can think about addressing before this market, maybe, gets away from us?

Robert Hvide Macleod -- Director and Chief Executive Officer of Frontline Management AS

I think if we look at Frontline here over the last three or four years, Greg, we've had over 30 newbuildings deliver. So in terms of the fleet, we're down below five years average. We've gotten out of a lot of the old ships in terms of the lease agreements. Are we on the lookout for opportunities? Certainly. Yes. And I think we have, with the support of our main shareholder, we can do stuff that very few others can, and we are on the lookout. But we're also seeing a very illiquid market where currently everybody is losing money out there. So, yes, we are looking for opportunities and we've -- as you see, we've recently purchased a Suezmax resale but we're not a one-ship process. It's not changing much. So for the right opportunity, we will certainly want to grow. But on the other hand, if we stay as we are, I think, showed on this lucky, lucky China graph, the Slide shows a $188 million for every $10,000-above breakeven. So let's see what opportunities come up. But if there are good opportunities and we feel they are the right opportunities for our shareholders, we'll be there to capture it.

Gregory Lewis -- BTIG -- Analyst

Is it really just the lack of -- is it a lack of willing buyers or is it -- are we looking at asset prices and think that there's an opportunity for asset prices to maybe drip lower?

Robert Hvide Macleod -- Director and Chief Executive Officer of Frontline Management AS

Asset prices, they've certainly come up a bit. At the same time, you're seeing very little activity on the newbuilding. So newbuilding prices are likely to fall or -- and are falling as we speak. But our focus here will be on the resells or modern ships on the water. And there will be opportunities out there. But it is a very liquid market. There's -- compare it to the dry cargo, there's as many transactions in a month than dry as there now on tanker in a year.

Gregory Lewis -- BTIG -- Analyst

Okay. And then just one more for me. Could you talk a little bit about, and maybe a little bit more color around, in the press release, you highlighted, the Q2 forward fixtures but then there was this language about vessels potentially being on ballast legs for longer, was that -- is that sort of a function of how the fleet has been positioned or is it more a function of, is that more an indication of the fact that the spot market, you know, the current spot market is really weak and that's just limiting opportunities to fix vessels?

Robert Hvide Macleod -- Director and Chief Executive Officer of Frontline Management AS

This is related to the accounting rules and the change in accounting rules. And if you look back in Q4, you saw us with a low number given because of a high number of ballast days. So, but further repeating what Inger said, then please look at the transcript of the call and you'll have her explanation of the factors.

Gregory Lewis -- BTIG -- Analyst

Okay, guys. Hey, thank you very much.

Robert Hvide Macleod -- Director and Chief Executive Officer of Frontline Management AS

Thanks.

Operator

Thank you. Your next question comes from the line of Amit Mehrotra from Deutsche Bank. Please ask your question.

Christopher Snyder -- Deutsche Bank -- Analyst

Good afternoon, this is Chis Snyder on for Amit. So just following up on the conversation around the company's footprint, you mentioned there support from the largest shareholder, and with shares trading at a premium to peers, kind of how do you think about using shares as a currency to add vessels as we're starting to see rates inflective of cash breakeven levels?

Robert Hvide Macleod -- Director and Chief Executive Officer of Frontline Management AS

Yeah, sure. We've got that as an option, absolutely.

Christopher Snyder -- Deutsche Bank -- Analyst

Okay, fair enough. And, I mean, you kind of mentioned one vessel doesn't do much for you. So is it fair to assume that if you do do something it would be more substantial than just one-off transactions?

Robert Hvide Macleod -- Director and Chief Executive Officer of Frontline Management AS

We'll look at both. If we think it creates value then we'll go for it.

Christopher Snyder -- Deutsche Bank -- Analyst

Okay, fair enough. And now, you guys talk a lot about refinery maintenance. The industry is kind of on the verge of coming out of these elevated downtime. Has there been any inquiry from charters looking to lock vessels away as demand is kind of set to pick up here?

Robert Hvide Macleod -- Director and Chief Executive Officer of Frontline Management AS

I think what we're seeing now in terms of the -- in terms of refiners first, let's look at some stats over the last few days and, obviously, we've known that more will go out of service here in Q2 or with expected. Looking at, for example, Asia here, then normally in Q2 you have about 1.5 million barrels a day of capacity out. Now you're almost double. So the fact show that refiners will be coming back where they're at now and then, obviously, then we'll be coming back. In addition, you've got more refinery capacity coming on in 19 and 20 than seen -- than probably ever seen in the world. So that factor, I think, is huge.

When it comes to the chartering activity, we're seeing more utility now in the Middle East given the political unrest and people will probably want their barrels out quicker. But the overhang of tonnage is not there to move the rates yet. But we're obviously watching that space closely. And I think the one to really watch closely is what's happening in the Atlantic. So I expect the volumes in the Atlantic in June and July to be a lot, lot higher than what we've seen recently. So that could be the start of the turn -- so the market -- but it course (ph) should be into Q3. It just depends on how much time it takes to clear the overhang.

Christopher Snyder -- Deutsche Bank -- Analyst

Yeah, makes sense. And then just lastly, you guys have done a good job kind of laying out all the headwinds the industry has faced year-to-date and I think in the release you said it kind of culminated in seaborn crude trade being down about 2 million barrels per day which is very meaningful. But still Q2 bookings are coming in at healthy levels. Have you been surprised at how resilient the market has been in light of the aforementioned headwinds? And what has been the driving force kind of helping to keep the market tight?

Robert Hvide Macleod -- Director and Chief Executive Officer of Frontline Management AS

We had expected the markets come off the first half of 19. So it did surprise us a bit in February when we saw it shoot up. And that was, obviously, the US volumes that came back. It suddenly was 3 million barrels in February. So to me that was very good sign because it shows that the tanker fleet, the tanker market is better balanced than many say.

Christopher Snyder -- Deutsche Bank -- Analyst

Yeah, fair enough. That's does it for me. Thanks for the time.

Robert Hvide Macleod -- Director and Chief Executive Officer of Frontline Management AS

Thanks.

Operator

Thank you. Your next question comes from the line of Fotis Giannakoulis from Morgan Stanley. Please ask your question.

Fotis Giannakoulis -- Morgan Stanley -- Analyst

Yes, hi, Robert, and thank you. Robert, I want to follow-up also on the Strait of Furmo (ph) situation and the UAE pension. If you have seen any increase in the risk premium both from insurers but also from the shipowners to trade in this region, and if you can share your experience, what has happened in similar situations in the past to the tanker market?

Robert Hvide Macleod -- Director and Chief Executive Officer of Frontline Management AS

So, the situation in the area, in terms of the risk, I've also said -- they've also have been -- we're raising the alerts in the ships. But in terms of insurers, not a great deal has changed. In terms of the markets, if you look historically for this, then these sort of events, it's normally something that triggers a quick turnaround in the market. But we're not seeing it yet. It could happen anytime. But I think the overhang of tonnage is just too great to move the rate. We've seen a lot of activity this week and people want the barrels out, but it is -- it is one of these surprising factors that could see the markets suddenly move 10, 20, 30 points in a week. But I haven't seen the firm signals yet.

And what I do expect is that with the pull-up of barrels out of the Middle East and the concerns around the Middle East, then if I was a refiner in, anywhere in the world really, I would be looking for alternative supply. So I reckon the demand around West Africa will increase and obviously, possibly, the US Gulf as well. So I think people will be looking at alternatives there, which for the tanker market would, obviously, in terms of most of the refiners being in Asia, then you'd go -- it will be positive for the ton-mile. But we'll see how over the next couple of months. But I would not be surprised if this is what turns things around.

Fotis Giannakoulis -- Morgan Stanley -- Analyst

So, and that's positive at the end as supply comes from further locations, is that correct?

Robert Hvide Macleod -- Director and Chief Executive Officer of Frontline Management AS

Yes, correct, correct. But it's one of many factors. It has to work along with other factors, right. And so it's something like closure of the spreads will move which is then talked about for decades but never, never really happened. And I don't think that sort of scenario will happen either, but it needs to be that extreme to turn the market quickly. But I think this is a factor that could work along other factors and then we'll start seeing healthier markets. Because, as you know, we really are at the bottom now especially in the open seas. The earnings are awful. So -- but we remain hopeful here and let's see if these -- a few factors play together will get our projections right that the second half will be good for us and the rest of the tanker markets.

Fotis Giannakoulis -- Morgan Stanley -- Analyst

And the market is awful, as you said, at this point, but you still reported 63% of your days at around $35,000 in this quarter, which is a very high number, and much higher than your peers. Can you give us a little bit more color how this was achieved? If you can give us a description about your ballasting schedule, how shall we think the remaining close to 40% of your days of your opening the second quarter?

Robert Hvide Macleod -- Director and Chief Executive Officer of Frontline Management AS

Now, I think, we are happing with the earnings. And, obviously, the headline number is always the VLCCs, but we've obviously got almost as many Suezmax as VLCCs and looking at those earnings, especially, I will say, Q4 last year, they're very, very strong earnings on the Suezmaxs. These, I think, were pretty much aligned with our peers being DST and Euronow (ph) so not a huge difference there. But we are ahead of the Suezmaxs. I think the chartering guys are doing generally a really good job. And that's what it's all about. That's -- it's all these single fixtures put together that creates these numbers. So, and also Aframaxs, really good job. You look at where we're guiding now on Q2, it's -- I really don't think it's bad. So -- but again, on the VLCCs, we have warned about it that ballast dates will come, will bring that number down. So if you have a ship that's opened end of June and there's end of May and loads early July, you will have to book all the ballast dates in June. So that all affected us per Inger's explanation. And in addition, the spot market is a very, very low-level scenario. We're down at average for the fleet, probably 12 or 13 a day. So this will bring the number down on the balance 37 or what it is, yes.

Fotis Giannakoulis -- Morgan Stanley -- Analyst

Thank you, Robert. One last question about supply and about asset prices. We have seen the last 12 to 18 months significant increase in asset prices particularly for VLCCs going from 80 to 95 approximately for a new vessel. How do you see asset values developing? And back in the previous cycle, in 2014, we saw values increasing ahead of the improvement of the market. And then when the market was improved, they actually stopped growing and they even declined. Are there any similarities with the 2014, 16 market or this time it's different?

Robert Hvide Macleod -- Director and Chief Executive Officer of Frontline Management AS

Now, I think, what we saw in 2015 was something we haven't seen ever, like, the 25 years prior, the spot and the values were very much aligned. But I think what happened then was the finance and other factors were -- made it different. And I think this time we're seeing the values move up on expectations of a stronger market with expectations that I think are right. But I don't think it will going to levels in the last good cycle. We might -- we might see one or two that you want to plus but I'm not saying there's not potential for it. But for me, it seems a bit subdued where -- how the price are reacting. We're seeing very few transactions. And we know that there are certain opportunities out there at lower figures than what the headline numbers say. So let's see. But I think there's going to be more money made the next couple of years for companies running a good chartering, and then more money made on the chartering income than the speculating of steel.

Fotis Giannakoulis -- Morgan Stanley -- Analyst

And in terms of ordering new ships or your group's appetite, the entire Fredriksen Group appetite in increasing its asset base by buying new assets, do you see this coming both from your company but also from the overall market, why this time we haven't seen newbuildings especially when we have such a large portion of the fleet being about 15 years old?

Robert Hvide Macleod -- Director and Chief Executive Officer of Frontline Management AS

Now, first, your question on the group, I think if there was ever a time where the expression fully loaded comes to mind, I'd say it's now. The JF Group is group is over 500 now in terms of units, if you include offshore and rigs. So it's a sizable operation. So we are well-positioned as a group for, hopefully, a good market ahead.

When it comes to VLCCs, I'm very pleased that we've seen a slowdown now over the last three, four months. And, I think, as I said on the last call, there are some resales available and normally we're used to very poor markets, right. So if we have the choice between getting a ship in two months or two years, then we'd say two years because they're also optimistic. They will get better at some point. But things are different now because everybody agrees that this market, the fundamentals in the various sectors look at being in our favor, so you would want the ship delivering in two months rather than two years. So I think we need to see activity and see the resales that are being taken out that are there before we see much more activity. So, hopefully, containers and LNG and other areas will be active as well, and big container ships also consolidation in Korea will probably tighten things. So I'm just hopeful that we're going to see less orders. But you know how it is. The same mistakes happens every time we -- we make money and then we start building and then we go down the drain again, right, but -- and I'm not going to say it this time it's different but I'll remain hopeful.

Fotis Giannakoulis -- Morgan Stanley -- Analyst

Thank you very much, Robert.

Robert Hvide Macleod -- Director and Chief Executive Officer of Frontline Management AS

Thanks, Fotis.

Operator

Thank you. Your next question comes from the line of Jon Chappell from Evercore. Please ask your question.

Jonathan Chappell -- Evercore ISI -- Analyst

Thank you. Good afternoon, guys. Robert, I wanted to start where we left off the last quarterly results which is around the dividend. If we're going to start with pursuant the company's stated dividend policy, that's what it says in the press release, can you clarify what the company's stated dividend policy is because two straight quarters of profitability, I think, anytime in the last 20 years would have resulted at least in some return of capital? So what is the stated policy? Let's start there.

Robert Hvide Macleod -- Director and Chief Executive Officer of Frontline Management AS

So as we wrote, we're paying down debt given what we've drawn has been the focus. Obviously, the dividend will be up to the board here to decide. But I can guide you as far as that I think when we've gone proximal here, the dividend will return sooner rather than later.

Jonathan Chappell -- Evercore ISI -- Analyst

So as we wrote, we're paying down debt given what we've drawn has been the focus. Obviously, the dividend will be up to the board here to decide. But I can guide you as far as that I think when we've gone proximal here, the dividend will return sooner rather than later.

Robert Hvide Macleod -- Director and Chief Executive Officer of Frontline Management AS

No, we'll, obviously, it's way too early to do the financing on this. So we'll probably draw on Hemen to make the first installment and then we'll -- I think, just to comment on the bank, we all know how difficult financing is, right? But Frontline remains in a very privileged position. So I reckon 65% financed at an extremely good term, so I think it's been doing a great job here overtime and under terms, it will be similar to what we've had in the past and we'll get a very good cash breakeven. So again, all that matters, right, it's getting the cash breakeven down so that we have the earnings potential through hopefully a good cycle.

Jonathan Chappell -- Evercore ISI -- Analyst

Okay. And that's obviously delivering for another year. Are there other opportunities like that vessel or is this just a complete one-off?

Robert Hvide Macleod -- Director and Chief Executive Officer of Frontline Management AS

Yeah, this is an isolated one-off but similar deals are available.

Jonathan Chappell -- Evercore ISI -- Analyst

Okay. My final one was around the VLCC charter and you had mentioned in the release that the chartering rate is lower than current time charter, is that lower than the one year time charter in the market right now? Is there any kind of guidance as to what exactly you are paying for those VLCCs charters?

Robert Hvide Macleod -- Director and Chief Executive Officer of Frontline Management AS

Yeah, the VLCC, the rate is below our own cash breakeven. So they are -- I probably, we've got just under two years, including options, we've got just under two years. So I think the average rate for the next two years is 22.5. They're modern ships. What's the charter out rate? Mid-30s moving up. So, say, they probably have a value of $5 million-plus, each of them per year. So $20 million to $25 million is what we're up forward and we've obviously made decent returns from those ships since delivery a year ago. So that was, obviously, why the decision to take those ships on.

Jonathan Chappell -- Evercore ISI -- Analyst

Right. And once again, opportunistic even though it was a year ago and the optimism in the market, I assume, those types of opportunities are a bit more few and far between today?

Robert Hvide Macleod -- Director and Chief Executive Officer of Frontline Management AS

Yeah, no, they're not easy to find. We keep looking, right. And the -- and whether you charter your ship for two years or you own or you -- actually, sometimes I prefer chartering it. So, at least, you're more flexible. So we keep looking for opportunities like this. And as we wrote in the press release, which we, I think, we haven't been that clear for a long time on the time charters and the strategy, but we've been holding back on that. We've got three ships out now. They all end in Q1 in 2020, and, frankly, we believe in trading the ships. And if we think the market is coming up, then we (inaudible) coming up then we hold back on (inaudible) and look at taking other ships in and trade around it. But what I can say on this is that when the market gets to the levels that we expect it to get to, then we also will be prudent and take some cover so that we have some cover on the down or when things come down again. It's like we did in 2017, the LR2 charters, the seven LR2 charters we had, in 2017 the market came off and marked-to-market of those seven charters made $50 million more than the spot. So we'll make sure to take cover when we think the time is right.

Jonathan Chappell -- Evercore ISI -- Analyst

Okay. That's very clear. Thanks, Robert.

Operator

Thank you. Your next question comes from the line of George Berman from ISS Securities (ph). Please ask your question.

George Berman -- ISS Securities -- Analyst

Hi, gentlemen, thanks for taking my question. The new accounting of load-to-discharge way of doing things, does that initially inflate your day rates versus the old way of accounting for it?

Robert Hvide Macleod -- Director and Chief Executive Officer of Frontline Management AS

No, it can inflate and it can deflate. You look at the Q4 number, it deflates to that. So for us -- so for quarter to quarter, it gets -- it gives a less precise picture. So I think it's important to look at performance over time as it always is, but that's the -- that's the simple answer.

George Berman -- ISS Securities -- Analyst

Okay. And could you give us a little insight on what your plans are for Feen, your Feen acquisition, you're on 28%, 29% now, I'm sure that you have some preferential treatment as to the installation of scrubbers there. But as an equity position, do you think you might spin that off like you did years back with finance or is it just an equity investment that you look to exit at one point in time?

Robert Hvide Macleod -- Director and Chief Executive Officer of Frontline Management AS

No, I think, this -- we've taken this decision. Obviously, we are tanker people and we're making money on tankers. But IMO 2020 is such an important event that we wanted some control of our destiny. And FMSI comes up here, excellent facility in Indonesia. We know they can deliver, where they're up to almost 50 commissioned, are now up and running and our own ships are going well as well. So for us, this is not a long-term or it can be but it's not something that we sort of want to own forever. So if the right opportunity comes up to exit and we think that's right for our shareholders, we will do that.

George Berman -- ISS Securities -- Analyst

That sounds great. Thanks. The -- over the recent years you have expanded your LR/MR tanker fleet quite a bit. They're transporting primarily clean product. Is that a market that you think is going to really start moving?

Robert Hvide Macleod -- Director and Chief Executive Officer of Frontline Management AS

We entered five years ago or six years ago. We went into MRs and LR2s. The MR segment, we've gone out of. So we only have LR2s now. They are basically the VLCC of the products market as you know. And I think the -- predicting which one makes most versus breakeven and so forth, it's in a strong market I think it's always going to be the VLCC, personally. But I think the clean market is going in toward better times. I think the LR2s will be the winners, that's why we hold on to them. We also got the optionality to trade crude in them, which has been a strong market lately. So it gives us good optionality but I think we're going to be predominantly trading clean. And I like these ships because they do, for example, diesel or jet fuel from the Far East or Middle East to Europe, and then they go back with NAS or other products. You have nice legs both way and with works and also, it's a liquid time charter market there so you can reel that and you can trade well around and, obviously, we're well-financed on the ships and some of them are all-sized class. So I think we're going to hold on to those ships and make some money.

George Berman -- ISS Securities -- Analyst

Brilliant. Thank you.

Operator

Thank you. Next question comes from the line of Robert Silviera (ph) from De Silva (ph). Please ask your question.

Robert Silviera -- De Silva -- Analyst

Yes, thank you, gentlemen, for taking the question. You addressed a little bit about the dividend and I'd like to know, you said you expected it to resume. Can you give us a little bit on the philosophy, what kind of percentage, for instance, of earnings would you consider, like, up to a minimum of 60% of the earnings would be a dividend? Give us a little bit of the future philosophy on dividends.

Robert Hvide Macleod -- Director and Chief Executive Officer of Frontline Management AS

Yeah, again, as you know, it will be up to the board here to decide. But to guide you, if you look at the historical, it's been a full payout. And I think when we start making money again and then you'll see a decent chunk of the breakdown be paid out.

Robert Silviera -- De Silva -- Analyst

A decent chunk, you got any kind of percentage that you can guide toward?

Robert Hvide Macleod -- Director and Chief Executive Officer of Frontline Management AS

It will be up to the board again to decide this.

Robert Silviera -- De Silva -- Analyst

Okay. Thank you. That's all my question.

Operator

Thank you. There are no further questions at the moment.

Robert Hvide Macleod -- Director and Chief Executive Officer of Frontline Management AS

Okay, then, I'd like to say, thank you all for calling in and thank you to everyone at Frontline for their great efforts. All the best.

Operator

Thank you. That does conclude our conference for today. Thank you for participating. You may now all disconnect.

Duration: 47 minutes

Call participants:

Robert Hvide Macleod -- Director and Chief Executive Officer of Frontline Management AS

Inger M. Klemp -- Chief Financial Officer of Frontline Management AS

Christopher Robertson -- Jefferies -- Analyst

Gregory Lewis -- BTIG -- Analyst

Christopher Snyder -- Deutsche Bank -- Analyst

Fotis Giannakoulis -- Morgan Stanley -- Analyst

Jonathan Chappell -- Evercore ISI -- Analyst

George Berman -- ISS Securities -- Analyst

Robert Silviera -- De Silva -- Analyst

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