TRMD - Frontline: Dynamic Tanker Markets And Ongoing Merger Drama (Podcast Transcript)

Summary

• Value Investor's Edge Live continues with an exclusive interview focused on the crude tanker segment of the shipping industry.
• Lars Barstad, CEO of Frontline, joined us in January 2023 to discuss the latest trends in the tanker markets along with specific company strategy and capital allocation priorities.
• Frontline is embroiled in merger fallout drama with Euronav after major parties failed to agree on terms and deadlines.
• Frontline's primary focus in 2023 will be strong dividend payouts with potential for some tactical asset additions (modern VLCCs the most attractive).
• A full audio recording (with time-stamps) is attached along with a transcript.

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Lars Barstad, CEO of Frontline ( FRO ), joined J Mintzmyer on Value Investor's Edge Live on Jan. 19, 2023, to discuss the crude tanker markets, upcoming Russian sanctions, overall company strategy, and capital allocation plans for 2023. Frontline is a major US-listed crude tanker shipping company with a fully delivered fleet of 68 vessels.

Frontline is currently embroiled in major drama with fellow US-listed tanker giant Euronav ( EURN ), which also controls a fleet of nearly 70 ships, after the previously planned merger agreement fell apart in early January. This ongoing drama is distracting from what is otherwise a phenomenal operating result and ongoing guidance from Frontline. Lars confirmed the primary strategy in 2023 is to focus on rewarding shareholders with outsized dividends. They might also consider some tactical asset acquisitions of modern VLCCs.

This interview and discussion is relevant for anyone with investments across both the crude tanker sector including DHT Holdings ( DHT ), Euronav ( EURN ), International Seaways ( INSW ), Navios Maritime Partners ( NMM ), Nordic American Tankers ( NAT ), Okeanis Eco Tankers (Oslo: OET), Teekay Tankers ( TNK ), and Tsakos Energy Navigation ( TNP ). Dynamics in the crude tanker market often spill over to the product tanker market (i.e. gasoline, diesel, jet fuel), which includes firms Ardmore Shipping ( ASC ), D'Amico Shipping (Milan: DIS), Hafnia Tankers (Oslo: HAFNI), Scorpio Tankers ( STNG ), and Torm Plc ( TRMD ).

Readers might also be interested in our interview with Jacob Meldgaard, CEO of Torm Plc ( TRMD ), which was recently shared on Seeking Alpha .

Topics Covered

• (0:00) Intro/Disclosures
• (2:30) Update on crude tanker market conditions.
• (6:15) Expected impact from the upcoming product tanker ban?
• (10:30) LR2 market update, clean vs. dirty balance (11/7).
• (13:15) Commentary on withdrawn Euronav ( EURN ) merger proposal?
• (15:30) Any legal recourse potential from EURN?
• (16:45) Plans for EURN shares? Risk from Saverys? Alternative M&A?
• (20:15) Potential for a large upcoming 'catch-up' dividend payout?
• (21:30) Overall capital allocation strategy into 2023? Need to deleverage?
• (25:00) Any truth to recent rumors of LR2 and/or Suezmax newbuilds?
• (26:30) Current newbuild availability? Are these attractive?
• (28:15) Which asset types and age profile are most attractive now?
• (32:15) What are the key risk factors for the tanker market into 2023?
• (38:00) New India vessel age-cap proposal sign of a trend?
• (40:30) Why invest in FRO vs. the numerous other tanker firms?

Full Interview Transcript

J Mintzmyer: Good morning, everybody and good afternoon if you're joining us from Europe. We're hosting another exclusive interview at Value Investor's Edge. We're hosting this on January 19, 2023 at about 9am Eastern Time. We're hosting Lars Barstad, the CEO of Frontline ( FRO ), to talk about the crude tanker markets as well as overall company's strategy and capital allocation plans during 2003.

As a reminder, nothing on the call today constitutes investment advice or company guidance in any form. I have no current position in Frontline; however, if you listen to recording or are reading a transcript at a later date, please be advised these positions may have been updated.

Good afternoon to you, Lars. Thanks for joining us today.

Lars Barstad: Thank you for having me, J.

JM: Yeah, absolutely. We definitely want to talk to you about the crude tanker markets. This has been on our agenda for a while of course, very exciting. Well, it depends on who you are, but very interesting and very exciting news with the Euronav merger drama as well! So thanks, again for carving some time out of your schedule to talk to us. I know you are very busy right now.

LB: No problem. For obvious reasons I can't talk too much about the current situation. But I might be able to elaborate some on part of the information that's already in the public domain.

JM: Yeah, that makes sense. And of course, I'll throw some questions your way. And I'm sure some of the folks on the call today will have some follow-ups. But I certainly understand it's a sensitive topic, and there's only so much you can talk about. So let's start with the broad crude tanker markets. They were very, very strong last year up into -- mid-November was kind of the peak there, ahead of the Russian oil price cap. They've been pretty volatile recently, a lot weaker. Can you talk about what's going on there? And what's kind of the current state of the market?

LB: I'll try and please. So basically, we need to recap a little bit in order to understand what's going on now. But we started obviously, like on a normal year last year. We were quite optimistic, looking at the expected fleet growth, the overall age of the fleet. We expected China actually to come out of the COVID lockdowns during the spring. And then obviously, everything was disrupted by Russia invading Ukraine. And then the overall theme was Aframax, Suezmax, LR2s and so forth, all affected by the disruptive flow of oil, all disrupted from oil, but the change in the trading patterns where oil was -- Russian oil was passing Europe and reaching further.

And Europe had to also reach out further to attract the barrels. And then towards the latter part of last year we suddenly saw China, the Chinese kind of engine stop work again. I've said it a few times on Twitter and it's a program, I believe from some traders, I learned down in Singapore. I was like you never short a sleeping dragon. And China has been a sleeping dragon ever since the COVID story. And basically what happened from August up to November was that Chinese crude oil imports increased by an enormous or impressive 3 to 3.5 million barrels per day. This coincided with the kind of the last parts of the U.S. quite aggressive SPR releases and quite healthy U.S. exports.

So you got kind of the best of two worlds, I must say, with regards to ton miles for VLCC here. So that kind of it -- took the VLCCs out to the Suezmax pool, which is sometimes kind of what happens when Suezmax perform well, whilst the VLCCs are struggling, they will actually go for the 1 million barrel cargoes. And that basically kind of -- it took the lid off the market. And basically, what we've experienced now over Christmas and for the last few weeks is that lid is starting to come back on.

So U.S. exports are struggling a little bit. You're kind of back to trend, I would say, at least on preliminary data, as far as I can see. We've seen kind of Chinese imports, also kind of, although at a much higher -- more normalized level are kind of -- that list of -- stopped growing. And with that you give a lot of tons that comes of long durations, and or they will compete in the Middle East market.

JM: Thanks for that rundown Lars, certainly a lot of moving pieces, and we're hoping to see some firming in the market. And in the last few days, we have seen that on sort of the dirty side, the crude side. Of course, the product side has been steadily weakening. I'm curious on the upcoming product ban that's going to happen in February 5. That's just two weeks away now. Do you expect any impacts to the crude tanker market from that, or is that just solely a product tanker?

LB: I think a lot of what's happened to the product tanker is kind of prior to the Feb 5, which is -- I'm just as excited about as you guys are. A lot of newbuilds will not be delivered in November and December, basically because for the owner, unless you get kind of whooping returns, you're actually kind of try and make the ship one year younger. And that includes ourselves. So we have two -- I believe one VLCC that was scheduled for delivery in December. We decided to hold it back. It just sits with the yard and then formally gets delivered in January. These kind of newbuilds have taken up a lot of volume for their launches on what's coming from the east and going to the west.

So I think that's kind of -- that's what's hurting their launches in writing. Post Feb 5, I think we'll see much of the same as we've seen on the crude side. We actually see a clean carrying vessel that's carrying Russian crude will have to go a long way from Russia to the east. And then actually it has to go empty back. And this is what creates these kind of abnormal ton miles is that in the compliant market, what you call the sanctions following markets, they are not exactly as expected -- or accepting kind of vessels with Russian history.

So you can imagine how inefficient the trade becomes when you go kind of west to east and then empty back. At the same time you have vessels are going the other direction being the compliant fleet and they're passing each other on their way. Post 5 of Feb I think we're going to see a lot more of that.

JM: Yeah, it's certainly going to be going to be interesting, and there should be an increase in ton miles across the board. We just -- we haven't really seen that yet on the crude side. But I do think the product -- it seems like the product side's a little bit more enforceable, and it's going to have some more teeth to it. Doesn't seem like the crude market stuff has really done much yet. And then it might be a product of the weaker oil prices as well. Do you think that's part of it, just that the price cap doesn't really matter at this level? Is that part of why there wasn't much of a change with crude markets?

LB: It could be, and it's a very valid point. If you look at the kind of Russian grades the trade up to discount, to Brent, which is, slightly below $60. So I think you'd have to look at euros for instance. So I think that is maybe part of it. The other part is the way kind of this price cap is supposed to be working. You have like kind of three tiers of operators in the oil market, whereas the first tier, they are the ones that are actually purchasing the crude. They have to have solid and firm documentation that the crude is purchased below the price cap.

The second tier, which would be the shipper, so the ship owner like us, all they need actually is a Letter of Conform from the owner of the crude that it has been bought under the cap. They actually don't need the firm documentation. So just in that you kind of opened up for the risk of the crude sailing anyway. And obviously there are plenty of nations that are not subscribing to the price cap. So this is the thing about shipping. If there's an opportunity, there is a way, right?

So but what we have seen on Russian exports is that it has been surprisingly solid, despite kind of all the sanctions to be quite honest up to this point, and also post the 5 of December.

JM: Yeah, definitely. It seems like there's just not a lot of teeth on that part of the sanction. But well February 5, it seems like there's more teeth on that one. And I think we could be in for some fireworks here next month? We'll have to watch that more closely.

Look, you have your toes in the product market as well. You have the 18 LR2s and some of them trade clean, right? And some of them are trading crude oil, trading dirty. Can you remind us on the balance of how those 18 LR2s are situated? And maybe talk to us a little bit about the LR2 kind of clean market, how that looks?

LB: Well the balance is right now there's 7 out of the 18 are dirty and the rest are trading clean. One point there is that the switching between dirty and clean is actually not impossible. What you basically -- as a rule of thumb, if one market pays your $750,000 more than the other on a reasonable voyage, you will actually go through the efforts and dirty up and clean again obviously.

So I'd say kind of the -- agility, if that's the word between kind of switching from one to the other is quite -- you'll find that a lot of vessels are moving in and out of this. On the clean itself it's been the performer kind of throughout this full, only with the exception of the last couple of months, or last month, I would say. But we still we want to keep kind of on the balance, we want to keep most of our vessels in the clean space.

JM: Yeah, that makes sense, Lars. And again, 11 are trading clean, and 7 are trading crude oil. And I think that's a similar balance that you've had. It sounds like it. I mean, we've talked before, it sounds like that's a pretty similar balance that you've had over the last couple of years. Is that fair?

LB: That's fair to say. And I also think that the kit is built to carry products. So we actually see the benefit of using the kit to do that. If you go there different, prolonged period of time, it will eventually kind of hurt your ability to carry clean product. So you can say that the cougar [ph] LR2 that's been trading dirty for say, three, four years straight. It's a big job to get kind of everything cleaned up again, to carry high grade products.

JM: Yeah, no, certainly. It certainly makes sense. And it's good to have I guess both -- feet in both the markets and have the potential to go in either direction there. I got to turn to the elephant in the room, Lars. I think this is the part that most folks are probably the most interested in of anything with Frontline. Like the Euronav merger proposal was on the table for -- I mean it's been almost a year now. It's been a while. And recently that was pulled. The initial ratio was 1.45 shares, as I understand it.

Can you discuss a little bit the rationale for why this is no longer a good fit, right? Because initially, the whole idea of the merger was you could have some cost synergies, and this would be beneficial for everybody. But obviously Frontline doesn't believe that anymore. So can you discuss that a little bit? What was the rationale behind not going forward with the merger?

LB: I think kind of, you're describing it maybe a little bit kind of wrong there, because it's -- the rationale has not really disappeared. But there are certain legal obligations under the combination agreement that had to be met by the end of the year. They absolutely had to. And then also, the whole kind of combination agreements was in order to produce one big efficient company. And that's also with the resistance from the Saverys, how wasn't likely post the 30 of December.

So I think kind of I'll stop there. But these are kind of futile to communicate publicly as well. And that basically forced our hand.

JM: Yeah, what I'm hearing from you, Lars and feel free to clarify, what I'm hearing is first of all, the overall rationale, the goal of merging the companies, that's still a good goal. You still kind of believe in that. But there's two issues. Issue number one is that Euronav did not hit obligational deadlines per your agreement. And issue number two is that the initial proposal was based upon a complete merger. And the practical implications were that, that was no longer possible. Is that fair?

LB: That's fair.

JM: Okay, I think that's a pretty good boil down of things. Look, Euronav is challenging this, they're challenging this legally. They're saying you can't back out of this agreement. Do you have any concern about the legal fallout of that? I imagine before making a decision like this, you talked to your lawyers. Is this thing pretty airtight? Do you have any concerns about Euronav trying to come after you guys?

LB: Again everybody who has been close to shipping knows there is a legal risk to absolutely everything. I think we stand on solid ground. But obviously Euronav are of a different opinion. And again, I think that there will be, there's been a call for kind of express, or extraordinary, arbitration here. Whether that kind of leads to anything, I'm very much unsure. But in the end, maybe down the line in a couple of years, we'll find out who was in right.

JM: All right, Lars. Well, it sounds like yeah, the Frontline position's that Euronav violated or did not meet requirements under the agreement. So I can see your position there. Frontline and John Fredriksen both owned shares in Euronav prior to this merger falling apart. John Fredriksen has recently been in the market buying more Euronav. What's the plan for the shares that you guys own? Are those core? You want to add to those? Or are those just -- can you talk anything about your specific investment in those Euronav shares? How do they fit into the company now?

LB: As a matter of fact, we've had shares in other companies as well, amongst them kind of SFL, which is kind of sister or brother of Golden Ocean, also sister and brother. Euronav is not necessarily a sister or brother, but this is for a reason. And there are a few moving parts. So we haven't really decided to acquire them. But if you just look at the share valuation of Euronav we still think it's very, very good company. We are strong believers in the tanker market. So I think that kind of answers your question.

JM: Yeah, Lars, one follow up there, and this one's kind of coming out of left field. But one concern investors have and investors in Euronav specifically, is that they bought Euronav to participate in the crude tanker markets. They are very bullish on the crude tanker markets, they believe in the long term outlook. Clearly, there's a vested interest in that company, who has a completely different vision, has a completely different goal, right, who wants to go in a completely different direction.

Is there a concern that, that party might seize control and take that company in a different direction and destroy some of that value? I mean that's got to be a concern, right, that Frontline owns the shares? Is that something you think is potential possible to happen? Or do you think that scenario is unlikely?

LB: I think, it's going to be quite interesting to see now that the CMB has called for an EGM. And because they also need to state kind of what their strategy is with the company. But what I've seen from media and press is that they have toned down kind of their ambitions. All shipping companies should have an active view towards kind of other fuels and other propulsion. We do too. But we're not particularly radical about it. We're I like to call it late adapters. So we don't run in the forefront. But I know I'm kind of excited to see how CMB are going to communicate their strategy for the company.

JM: It's going to be very interesting. Let's get our popcorn ready. Hopefully, it won't take a couple of years, like you said, hopefully, it'll be a few months. But we'll look forward to that one. Is there any potential alternative merger and acquisition potential now that that you're an avid kind of on the sidelines? I mean, I'm thinking there's a lot of other companies out there and there's some that are have very attractive fleets and very attractive valuations.

LB: There are, but I think it's a bit premature to go into that, to be quite honest. We just kind of broke up with a massive kind of partner here. So I'm sure there are, but to be honest, we're not really digging into that right now.

JM: That's probably good dating advice not to run into a rebound relationship too fast. But if you need a shortlist of candidates there, Lars, I have a few on my list that I think are attractive. I'm sure they're on your list too. What about the dividends? You had to cut your dividend big time because there's a merger proposal. The Q3 dividend was postponed and Q4 was also at risk. What does that mean now? I mean, you're going to report results here in about a month. Are we expecting to see a huge catch up dividend?

LB: I don't want to kind of go ahead of public information and so forth. But I would probably more frame it, as we, Frontline, we have a tradition for paying out dividends to the tune of 80% of adjusted net income. So I think shareholders from past should expect us to continue that going forward. Yeah.

JM: Yeah, that makes sense. Lars. And I know that shareholders over the last couple of quarters were looking forward to seeing your outsized results and getting that dividend? And of course, this was a temporary pause. We understand why, but hoping you'll see that come back.

Let's pivot away now. I appreciate your willingness to answer some of those questions with the merger there on everybody's minds. I want to talk about overall capital allocation just for Frontline, just the core company. What are the priorities here in 2023? Are we looking at some deleveraging? Are we looking at fleet renewal? Is it mostly shareholder returns? It? Can you talk about that plan for 2023?

LB: Sure, so deleveraging is not something that we normally do. We're actually loan-to-value is actually lower than what we normally are comfortable with. So I don't think that's kind of an option. We're a little bit visible [ph] to them in terms of share price performance, relative to NAV. Frontline is actually fundamentally a very cheap company now, different from what it used to be. So unless that corrects, there could be discussions about share purchase. But we're not -- we haven't really gone down that route before. So I don't know if the Board is going to go that route this time. But so basically, we are -- it's kind of -- this is the strategic discussion, which we haven't finished yet.

But either you go into kind of harvest mode, where we'll try and kind of squeeze out as much money in the current market and then pay our shareholders. We kind of have the overall philosophy, that it's the shareholders in the end that should decide their own kind of allocation of monies. So we'll pay them out. And then they can reinvest either in Frontline shares or in other asset classes, or whatever they want to do. And where much like our major shareholder and how they do it. So I don't think that is going to change.

Looking at kind of asset allocation as in investing in new ships and so forth, we have kind of an idea of tanker markets being to some extent reverting. And this is why we've picked up these six Hyundai's in what we felt was kind of the low end of the market. Right now, I don't think we obviously kind of hand on heart can say that we're in the low end of the market with newbuild prices, north of $120 million, and delivery windows far out. So it's a difficult calculation to make, and a difficult kind of investment decision to make.

Obviously it depends on how bullish you are for the next three years. So I won't rule anything out. But I think kind of one should expect, as always Frontline to act very rational, and also have a focus on making the shareholders decide what they do with the money we generate.

JM: Yeah, thanks, Lars. Just to sum that up, and make sure I heard everything correctly, it sounds like there's really no real need or no reason to accelerate any sort of deleveraging. It sounds like most of the available cash is going to go towards dividends. You explained why? And it sounds like there might be some calculated tactical purchases of assets or maybe a couple of newbuilds, but it sounds like the number one priority is dividends. And maybe the number two priority would be selective assets. Is that fair?

LB: That's fair.

JM: Speaking of selective assets, there's been kind of a rumor or actually it was a published piece in TradeWinds. But of course, that can be rumors as well. You mentioned that you ordered a couple of LR2s and maybe a couple of Suezmaxes. Can you talk about that at all?

LB: I actually happy to talk about that, because I was quite surprised. TradeWinds obviously reached out and asked for comments. I told them that their information is incorrect. And they ran the article anyway. So as I said to another news outlet, kind of the platform that from time to charter [ph] it consists of five stocklisted shipping companies, and the private held shipping company, which is probably one of the largest platforms in the world. We will always have certain deals, not in the pipeline, but looking at them, whether if they can go into the pipeline or not.

Any day of the week, it will be something we're looking at. And this is how kind of these rumors suddenly erupt, right. So I think I'll leave it at that.

JM: Just to clarify, Lars, it sounds like the SEA Tankers Group was looking at a couple potential deals, but there are no confirmed newbuilds on the Frontline side.

LB: No.

JM: If you were to do a newbuild, what would be sort of the delivery window? I think these were rumored to be late 2025. Is that about right for when you could get a newbuild today?

LB: Yeah, that is -- some it's -- there are a few kind of yards that have come some capacity in the latter part of 2025. I think if you want to kind of order any meaningful size or amount of vessels, at least at the Korean yard, you're looking at almost mid-2026 now. But I don't see any capacity out there of any significance in 2025.

Also there has been a couple of instances, or at least one confirmed one -- or whether it's confirmed or not is difficult to say of container conversion into Suezmax. And that is possible, but it's still Q4 2025, and at fairly high cost, because the rationale for making such a decision to convert is that -- is because you're in the hole on the container side. And then you're willing to accept some higher costs than what a normal Suezmax slot would demand just to get out of the container bit.

JM: Yeah, definitely a tight spot for those folks. So it sounds like the earliest deliveries are late 2025. Do any of those look attractive Lars? Or if you were going to buy something, I know you said there might be some tactical assets on the table here, what sort of age range? What sort of assets would you be looking at? Would these be LR2s, VLCCs, Suezmaxes? Would they be newbuilds? Would they be secondhand? And what sort of categories are you looking at?

LB: We would -- obviously, if it's a reasonable for us to resell out there we will look at that. We wouldn't normally not go below a five year, kind of secondhand vessel in age, or over five years. And so I guess is the correct way of saying it. We -- with regards to which [indiscernible], of course, now everybody should be hope for LR2. But LR2s still have an order book actually, as opposed to the Suezmax and the VLCCs. Just looking at the spot market on the kind of inverted kind of earnings profile we have with LR2 are outperforming Suezmax in the middle, and the VR are in the slow spot.

I still think that just looking at our fleet composition, it's probably going to be a VLCC we would look for. We I still believe -- although we are in a kind of typical market right now with this kind of rates inverted, I think kind of longer term it's still true that that the economies of scale work. The upside to the VLCC being able to carry 2 million barrels will always be higher than the Suezmax and Aframax and the marginal cost of running a V is only kind of $5,000 away from Suezmax and another $3,000 away from LR2. So if you if you put that into the equation VLCC is still kind of the place to be.

JM: Yeah, that makes sense. Lars. So it sounds like we narrowed it down to the most attractive asset type is VLCCs right now, the most attractive age range is anything younger than about five. How do you compare like maybe say something like a resale for 2023? Or maybe it's like a two or three year old ship, say a 2019 build, how do you compare that to a newbuild? Is there any attractiveness to buying a new build today? Or would it have to be a resale?

LB: The newbuild is obviously limited with -- it's the timing that is the challenge. Kind of we're operating in one of the most volatile markets in the world. We know what we have in hand right now. And we have some visibility for the next year, maybe two years, kind of the situation might be different when you are in 2025, get your ship delivered and the order book in '26 looks like, a mountain in front of you.

So this is why a newbuild, it's the timing that maybe kind of makes it a little bit of a hard decision to make. Obviously, the pricing as well. But there's a curve there, going down kind of, to the 5 year, 10 year, 15 year and so forth. So everything is priced, kind of in that -- related to somewhere in-between scrapping price and the newbuild. So but it is in particular kind of something that can be delivered prompt, and on the modern side of the scale.

JM: Yeah, that's helpful Lars. And I think we -- it was a very broad question, I think we've nicely narrowed that down to the most attractive asset right now being a VLCC, that's between zero and five years old. So that's very interesting. And I think it would be fantastic if you're able to acquire some ships of that category. I mean, they're cheaper than the newbuilds, and you can get them today. So it makes sense to me.

What are some of the biggest risk factors Lars going into 2023? You're very optimistic. You're very bullish. I've seen the data. I have reason to be optimistic myself. But what might we be missing? What are the scary things out there?

LB: I think what we have to keep in the back of our heads, and it's terrible to say it, but it's the risk of peace in Ukraine. It sounds backwards. But just purely kind of market thinking and the cynical rationale. There is a lot of ton miles demand that has been created by the inefficiencies around the sanctions on Russia, and Russian exports. I think just looking at the political landscape and government success, we're in the middle of the revenge of the old economy.

I think kind of any sanctions imposed on Russia is going to be fairly swiftly removed, if kind of we either get some peace treaty or/and maybe some change in government in Russia. And I think that is -- you can compare it to what we saw on the dry bulk market or in the container market, kind of those, the tightness in the market was to a large degree created by either queueing imports or whatnot. And those are temporary kind of things.

And once one of those temporary things are removed, you suddenly get far more shipping capacity, and the markets will correct. So that's something one should keep in the back of their heads, particularly as we roll into 2023 here. Apart from that, I'm actually not too worried. It sounds strange, but all supply and also to some extent demand, I think we were -- we should be quite comfortable demand now with China back. It's actually for the oil price itself. It's actually been a relief of energy prices itself. It's been a relief the fact that China has been under lockdown during 2022. So I think kind of that balance, although as a freighter you would love oil production to just increase into the skies. It's unlikely it's going to do that. But with the average age of the fleet we have, with the lack of deliveries, we were actually in going into the negative fleet growth territory here, overall, if you look at the tankers. And as I mentioned already the order book, I don't really see that many clouds in the skies, even if the world was to go into some sort of recession mode.

JM: Yeah, that makes sense Lars. And thank you for being so straightforward with one of the big drivers that has changed the market last year. I mean, it's undeniable that the tanker market fortunes changed on a dime in February of last year. It doesn't take a genius to figure that out. But I appreciate you being so blunt about that, and how that's something investors need to watch. And of course, there's a balance there, right, we can all hope for a humanitarian peace scenario. But we also Europe and Russia aren't going to be buddies again, right.

I mean, Europe's probably learned their lesson about relying on Russian gas and relying on Russian oil, there's still the issue of even if there is a peace treaty or armistice, there's still the issue of Crimea, and how that's going to be resolved. So yeah, very dynamic situation. But I appreciate you pointing straight to it and saying, this is the number one thing that is really impacting the tanker market, right.

LB: I think, I was also trying to emphasize maybe a bit clumsily, that it's going to be very difficult for a European, or even a U.S. government, when crude oil prices are $250. And gas prices are kind of up in the skies, to politically stand tall, and keep sanction pressure on Russia. We've seen how they've been dragging their feet throughout the whole kind of ordeal, never actually putting sanctions on the molecules themselves. So this is why I think kind of Russian crude could all of a sudden flow the short voyage to Europe before kind of, we know it in a peace or political changed kind of situation.

So but one thing that I want to say as well, because I had an investor call this morning with one of the analysts to Maxim, and the question came up, same on the risks, I think of one of the big risks in this market is actually from an environmental catastrophe triggering, that we stop using old defunct kits. The overage, and many times on the unapproved uninsured portion of the VLCC and Suezmax fleet are up in the 10% to 12% of the total current nominal capacity out there. And if you start to dig into that, you have zero deliveries. You had to take away 10% of the capacity basically, because a world police man manages finally to get rid of Iranian and Venezuelan trading vessels, then we are up for a different surprise, and it's going to be on the upside.

JM: Yeah, that'll be interesting, Lars. I did see a headline up this morning that India is going to ban all vessels older than 25 years from accessing its ports. I think if a country like China would come along and endorse a similar policy at 25 years or even 20 or 22 years that could also have a big impact on mitigating that fleet. So hopefully, that can be the case. Hopefully, this India, policy is a sign of many things to come.

I'm skeptical, as someone who studies sanctions and trade flows myself, I'm skeptical that any sort of, regulation of dark ports and such will ever be effective. But I think if the ports themselves ban old ships, I think that will really help tighten up the market. So hopefully we'll see more of that, Lars. Are there any discussions that -- did you know about this India thing ahead of time? I didn't know about until this morning.

LB: No, no, not really. To be fair, India has been the country that's accepted -- been accepting kind of more than 20 year old VLCCs for a long time, I see being of the state for a short period who has happily kind of been doing that. They have a scare kind of outside the southern tip of India about a year ago, a bit over a year ago. And since then, we haven't really seen IOCs keen [ph] on the more modern kind of ladies.

But just one comment on China. China has actually been amongst the better performers in this respect, obviously ignoring the fact that they do import a lot of Iranian crude but in order to access the Chinese port you will struggle if your vessel is about 20 years.

JM: Yeah, thanks, Lars. That's helpful information. Yeah, and I think those sorts of regulations are going to have a lot more impact than any sort of international sanctions regime or even something like the CII. I think just banning really old ships is going to be more effective. At least that's my simplistic approach. But that's kind of what I'm looking at.

Look, Lars, this has been really helpful. I appreciate your time this morning, I guess your afternoon. I really appreciate you talking about the Euronav merger as well. I realize that's a sensitive topic. I want to give you the last word. Why should investors today buy Frontline stock symbol FRO versus nearly a dozen other tanker firms that are out there?

LB: Thank you for that J. I think it goes to if you look at various tanker operators, you will not find a tanker owner that will offer you the cash flow yield that the Frontline does, in both in a good and a bad market. Of course we have a modern fleet. Right now we're reaping the benefits of having three or even four legs to stand on, namely, the VLCCs, Suezmax and afra and LR2 leg. We are even managing to reap the benefits of this inverted kind of price picture that we're having. And kind of low cost efficient operations with focus on returning shareholder value.

So that's an also. Right now it's actually quite attractively priced, which is very uncommon for Frontline share. So I think I'll leave at that J.

JM: Yeah, thanks, Lars. No, I certainly appreciate you coming on to our interview this morning and agreeing to share with us. Thanks again for your time.

LB: Thank you for having me on.

JM: This concludes another exclusive interview at Value Investor's Edge. We hosted Lars Barstad, the CEO of Frontline, recorded on the morning of 19 January at about 9am Eastern Time.

As a reminder, nothing on the call today constitutes official company guidance or investment recommendations of any form. I have no current position in Frontline ( FRO ). However, if you're listening to recording or reading a transcript at a later date, please be advised those positions may have been updated.

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