Frontline (NYSE:FRO) reported first-quarter financial results on Friday. The transcript from the company's first-quarter earnings call has been provided below.

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The full earnings call is available at https://edge.media-server.com/mmc/p/4rj4yyi6/

Summary

Frontline PLC reported a highly profitable Q1 2026, with standout time charter equivalent rates across its fleets, indicating strong market conditions.

The company demonstrated robust financials with $559 million in profit and substantial cash reserves of $945 million, alongside securing financing for new building commitments.

Strategically, Frontline PLC is focused on maintaining spot market exposure while securing short-term coverage to mitigate risks due to geopolitical uncertainties, particularly in the Middle East.

The company highlighted tightening fundamentals in the tanker market, driven by geopolitical tensions affecting oil supply routes, leading to new trade patterns and increased demand for diversified oil sources.

Management remains optimistic about future market conditions, underpinned by potential easing of geopolitical tensions and continued demand for compliant vessels amid an aging global fleet.

Full Transcript

OPERATOR

Dear all, and thank you for dialing into Frontline's quarterly earnings call. Unprecedented times springs to mind as we're reporting Q1 2026 well into the first half of the year. I've been in this industry for more than 20 years and I did not imagine us in a situation for this duration where the Strait of Hormuz has been effectively closed with the opaque and volatile political narrative. These days, the Frontline team focus on the real cash generating business to be done, not speculating too far into the future. We have put the most profitable quarter since 2004 behind us and are well into a potentially even more rewarding one. I'll get back to how we analyze the situation between the call and before I give the word to Inger, I'll run through our TC numbers on Slide 3 in the deck. In the first quarter of 2026 from Planet Shield, $103,500 per day on our VLCC fleet, $72,400 per day on our Suezmax fleet, and $50,700 per day on our LR2 Aframax fleet. So far in the second quarter of 2026, 82% of our VLCC days are booked at 181,000, 79% of our Susmax days are booked at $131,300 per day, and 68% of our LR2 Aframax days are booked at $125,000 per day. Six digits across the board. All numbers in this table are on a load discharge basis with implications of balance days at the end of the quarter. And now let Inger take you through the financial highlights.

Inger

Yeah, thanks Lars and good morning and good afternoon, ladies and gentlemen. We can then turn to slide 4 and look at the profit statement highlights. We report profit of $559 million or $2.51 per share, and adjusted profit of 344.9 million or $1.51.55 per share. In the first quarter of 2026, the adjusted profit in the first quarter increased by $14.5 million compared with the previous quarter and that was primarily due to an increase in over time charter earnings of $112 million from 424.5 million in the previous quarter to 536.5 million in this quarter. Ship operating expenses increased by 5.9 million from previous quarter and that was mainly due to a decrease in supplier base of $5.4 million in the quarter. Administrative expenses excluding the synthetic option revaluation loss/gain of 5.8 million in the first quarter and gain of 0.5 million in 4Q25 increased by 8.5 million from the previous quarter and that was primarily due to synthetic option exercises in the first quarter of 2026. Then the adjusted interest expense decreased by 9.8 million from previous quarter and that was due to lower debt and decrease in interest rates and margins. Also, depreciation decreased by 6.2 million from previous quarter due to sales of LTCs in the period. Lastly, income tax expense decreased by 0.6 million from the previous quarter. Let's then look at the balance sheet on slide 5. Frontline has a solid balance sheet and strong liquidity of 945 million in cash and cash equivalents including undrawn amounts of revolver capacity of $473 million, marketable securities and minimum cash requirements as per 31 March 2026. We have no meaningful debt maturities until 2030. Remaining new building commitments at the end of the first quarter was $925 million which relates to the acquisition of the nine new buildings from affiliates of Herman. The company has secured new building financing of up to 737 million as set out in the press release. Let's then look at slide 6. Fleet composition Cash Breakeven Rates and Offset Our fleet consists of 33 VTCs, 21 Suzmax tankers and 18 LR2 tankers, has an average age of 7.5 years and consists of 100% ECO vessels where over 64% are scrubber fitted. We estimate average cash breakeven rates for the next 12 months of approximately $24,300 per day for VLCCs, $24,300 per day for Suezmax tankers and $23,600 per day for the LR2 tankers. That gives a fleet average estimate of about $24,100 per day. This number includes dry dock costs for six Viltas, three Suezmax tankers and eight LR2 tankers. The fleet average estimate excluding dry dock costs is about $23,000 per day or $1,100 per day less. We recorded operating expenses included drydock in the first quarter of $11,300 per day for VTCs, $9,100 per day for Sewsmax tankers and $10,900 per day for LR2 tankers. This includes drydock of 4 VCCs and 3 LR2 tankers and the Q1.26 fleet. Average operating expenses excluding dry dock was $8,900 per day. Then let's look at slide 7 and cash generation following that. We have been entering into one year time chart agreements and we had a fleet renewal in the first quarter and also in the second quarter. Spot days for the next 12 months is about 23,700 days. Frontline has substantial cash generation potential with 27,900 earnings days annually. As you can see from this slide, the cash generation potential basis, current rate, TCE rates and TCE as of May 22nd, 2026 is $1.5 billion or approximately $7 per share. That provides a cash flow yield of 18% basis the current share price. If we look at a 30% increase from current spot market that will increase the cash generation potential to about $2.1 billion or $9.51 per share. An equal 30% decrease from current spot markets will decrease the cash generation potential to about $1 billion or $4.41 per share. With this I leave the words to Lars again. Thank you Inger.

Lars

Let's move to slide 8 and look at some of the market highlights that we're going to go through in this deck. But first of all I'd like to remind the audience that we've had tightening fundamentals in the tank market ever since around this time last year prior to the Middle East conflict. We reached an unprecedented situation after 28 February with the Strait of Hormuz effectively closed. The chart on the top hand right side kind of indicates this. Here you see the year on year weekly changes inflows whereas the Middle East Gulf drops dramatically starting in week 12. The US Iran on-off peace talks and the tightening potentially easing of Iran related sanctions together with uncertainty on Russia Russian oil assets creates a lot of volatility. The market are starting to focus on the potential long term implications coming from the current situation in the Middle East and more so if we can imagine the situation getting solved, we're going to see restocking of inventories, increased strategic storage especially amongst Asian importers and we're also going to see higher focus on diversification of oil supply now that we've seen how vulnerable you can be being dependent on purely Middle East supply. We also see that order books continue to grow as we stretch into 2030 delivery windows. Now asset prices continue to appreciate as freight market outlook remains firm and we see a fairly high activity on longer term time charter contracts. Just want to give you a small little kind of hint on the bottom left hand side chart. We're basically not only using the TD3C index which is a Middle East Gulf loading index to China. We're also using the TD15 index outside of the Middle East Gulf, West Africa to China. Although it looks quite bleak, only kind of rewarding us with $100,000 per day. This is four times our cash break EMA levels. So it's still very good money. Although we wish we could have made $400,000 per day every day. This is a very much a theoretical exercise as the market is right now. Further if we move to slide 9 I'm going to take you through two fairly complicated slides but I think needed for this session as we are in the situation we are. So we try to first of all straight up for most closure it's very much a VLCCs event. This is the big kind of ride for the vlcc. This is where the most volume is lifted on VLCCs transporting oil both to the east and to the west. We've seen kind of prior to the closure that the daily tide of fields VLCCs in this market has been on average 491 vessels. This consists of laden dry dock vessels that are doing cargo ops or other stuff. We have at any point in time have had stopped balusters east of Suez and we've always had vessels waiting to load in the Red Sea. Basically when the, when the straits closed we had a massive loss of 130 ships that were so called laden dry docking or doing cargo operations. This is the dark blue kind of baseline in the chart in the middle here. Then we had an increase of 21 vessels waiting Loading in the Red Sea. And this is like daily tide up tonnage so it shouldn't really been looked at as an absolute number. Then Suddenly we had 41 VLCCs laden loaded with oil waiting inside the Middle East Gulf. And then you had 55 VLCCs equivalents stopped and in ballast east of Suez. This brought us back to 480 VLCCs after the Hormuz closed. Basically only a reduction of 11 VLCCs equivalents in this extremely severe situation for the VLCCs segment in special if we move to slide 10 and look at how the flows developed post closure we were at 17.7 million barrels per day from various suppliers inside the Middle East Gulf. We lost 5.9 million barrels per day from Saudi, 3.2 from Iraq, almost 2 from UAE and on it goes 1.4 from Kuwait and almost a million barrels from Qatar. Well as we proceeded we were able to increase the throughput in the pipeline ending up in Fujairah of Almost a million barrels per day. Saudi Arabia started to utilize the Yanbu pipeline going from the from Middle East Gulf out to the Red Sea, increasing by three and a half million barrels per day. And then the rest of the world has gradually towards where we are now, increased output by 3.3 million barrels per day. This is basically meaning a net loss of 6 point of only 6.2 million barrels per day. What we're later going to look at, and we might jump at this straight away if we move to floor to slide 11, is that even with this effective closure of Hormuz, we have had so large changes in trading patterns that we're actually back to oil kind of traveling over distances. Oil on water Pre the Hormuz closure, the long haul trade has kind of outgrown the loss of the relatively short haul trade from the Middle East Gulf to Far East. We also seen export capacity that we actually didn't know existed, or at least we didn't really focus on it. Adding to this volume, we've seen Asia increase their sourcing from virtually all available regions, all of them further afar fweling this ton mile and this high utilization. Despite the volume shortfall then Asia adjusted for distances shipping demand is surprisingly robust. Crude on water is recovering fast. And this is important to note when you look at a real time picture, you will not record this until after the fact. It takes 30 to 45 days from a barrel is contracted to be freighted before the oil is actually loaded on the ship. This means that it's only in the last three, four weeks we've seen this materially happen using the data or using the kind of oil on water data. I have to say though, and we might actually flip Back to Slide 9 because this is important. On this chart you'll see kind of in the middle on the top right hand side there the, the number plus 55. These are vessels that are contracted or majorly contracted to players that are not necessarily having the same economical rationale that we as a shipowner would have. These are vessels who do the baseline of oil transportation from the Middle East Gulf to Asia. They're contracted to industrial players like refiners and oil majors. And for these guys to not have vessels available should the strait open can be an extremely costly affair. These ships are contracted on modest rates. You're talking five year deals, six year or seven or ten year deals between 35 and $45,000 per day, meaning that that's the option premium they pay in order to be able to lift first oil as it comes and for them this is logistics. It's not necessarily profit different from frontline. And of course, hadn't we had this kind of idle fleet, I think the supply and demand picture would have looked a bit different on tankers, especially vlcc. But that's the case and that's the way it is. And right now we're reaping the benefits of the fact that a relatively large portion of the fleet is unutilized, waiting for something to happen in the Middle East. Let's jump forward again and get into slide number 12. So I mentioned that the order books continwe to grow. We're starting to get into kind of territory where you have percentage numbers that start with a three, but still we have this aging of the fleet that is ongoing. If you look at the table on the top left hand side, the vessels that are currently 15 years or currently 15 years or younger, they are going to be 20 years within five years and that amounts to 45.5% of the current fleet. If you put that in the back of your heads and you look at the order book, which for the asset classes we Deploy is around 23.2%, then it doesn't look too alarming. The period that the current order book is delivering over is the next three to four years, where kind of the bulk of the vessels, for especially VLCC on Zoosmax, are actually coming in 2028. So with this in mind, I'm not saying that the order book is non existent, but I'm saying that the order book is manageable. Also, I think it's important to note when we look at these charts that the likely outcome or the likely kind of points on the list, if there is a peace solution between US and Iran, is going to include sanctions on Iran and oil. This means that the current part of the fleet that is now servicing the Iranian crude is going to be obsolete. And that amounts to 15 to 17% of the overall VLCC fleet, which overnight are going to become useless. We can move to slide 13 and dig a little bit further into this argument. So we have very strong spot and period markets in addition to the fundamental backdrop which I just pointed on. And this keeps ordering activity high. Despite the current opaqwe situation in the Middle East, tanker ordering is accelerating for 2029 and we are starting to see slots move into the 2030 window, increasing the Runway. We're talking about three years, three and a half years until a new hull can be added to this order book. With the absence of recycling, but the continuous aging of the fleet, the net Compliant fleet growth is still manageable where we are now. And mind you again, we do not see vessels over 20 years being deployed in any markets despite extremely constructive rates. As I mentioned, the likely endgame of Middle East conflict implies reversal of Iran sanctions, adding to the demand for compliant tonnage and potentially triggering the very kind of sought after wave of recycling. One kind of larger fundamental piece in this picture is that the number of shipyards is still materially lower than what we saw in the 2010, 2011 peak. But the consolidation and more recently efficiency gains put the CGE capacity closer to ice. I'm almost saying this that basically to explain how even though the building capacity and the capacity to basically have new tonnage into the market to service future oil transportation demand seems limited, we are actually in the place where we are going to be able to maintain a fleet that can service oil markets for many years to come. The top right hand side chart shows us basically how the kind of overall net fleet development is looking right now. And it's not alarming by any means. Then let's move into slide 14. I think I'll just start so that you can look at the bottom hand slide bottom chart because we've used that, you know, for quite a few quarters now. And mind you, the orange thing at the end there, I mentioned that we Frontline has not had a quarter like this since 2004. Look at where we are now year to date in 2026. It's quite extraordinary. Yes, there is a certain portion of this index but that is colored by the fact that we have some of the trades that cannot be performed but are being printed at extremely high levels. But still we are in unprecedented times. Fundamentally tight market conditions and they were present prior to the Middle East disruptions. The disruption in trade lanes has yielded inefficiencies and new trades and longer trail lanes have been developing and we believe this can be a bit sticky. Basically dwe to the energy security part of this we have continuous muted growth in the compliant tank effect and that remains. That is still at the core of the case of owning tanki stocks. Asset prices continwe to move and both spot and period markets support investment decisions. As we move forward here, the current political environment changes the game and I repeat myself, we are focused. We will see a higher focus on energy supply security going forward. Frontline is in center stage with our VLCC heavy efficient business model as hopefully positive outcomes nears. Thank you very much for the attention and then I'll open up for qwestions.

OPERATOR

Thank you. To ask a question you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. One moment for our first question. And this question comes from the line of Sheryl Elmograbi from btig. Please go ahead.

Sheryl Elmograbi (Equity Analyst)

Hi. Thanks and good afternoon. First, starting with the fixture count, when I look at VLCC fixtures, I see activity out of the U.S. gulf, West Africa declining slightly from April to May, even though rates have remained very strong. So I'm curious if you're seeing the same thing and if you have an idea of what's going on with fixture activity.

Lars

Well, it's kind of, this market has kind of moved into very much a stealth mode. So it's of course not everything that is seen. But I think kind of from a utilization perspective, you know, if you are a oil trader, you always utilize your own fleet first. And this means that those have issues that will not be reported in the market, although the volume might remain the same. Secondly, we've seen that kind of the fixing happening out of the US Gulf has been extremely kind of mini cyclical. It starts with kind of the short term barrels being fixed on afromaxis, which we've seen kind of recently. Then suddenly it tricked into Suez Maxis bringing the oil to Europe until suddenly you see dates being kind of confirmed for oil moving into the Far east, which brings the VLCC kind of into the game. And then suddenly the VLCC fade, the source max fade and we're back on the Afro Maxis again. And then it just repeats itself. So, you know, it seems like the US Go fixtures on the VLCC side happens on a kind of a monthly cycle and it only happens within a week, week and a half in that month. So I think it's quite difficult to read from fixtures, first of all because it's very difficult to see all of them. And secondly, because you have this kind of a little bit untypical pattern. You don't have like a kind of a continuous flow of VLCCs being fixed or a continuous flow of Suezmaxes or continuous flow of aframaxes. It basically depends a little bit on the prices of crude, how the arbs are kind of opening or closing. Of course, with extreme volatile narrative. Virtually every Friday we're about to open Hormuz and every Monday it's closed again. This makes this kind of a very difficult playground for even the traders.

Sheryl Elmograbi (Equity Analyst)

Yeah, I definitely get whiplash from the headlines. Sticking with the idea of captive fleets, the presentation mentions 55 VLCCs on standby outside the Arabian Gulf. Do you have a thought on why the NOCs, I'm assuming they're NOCs, might do that rather than participate in alternative trades for the time being?

Lars

No, I think it's. Obviously, I don't know this, but a likely theory is that in the event of an opening, say somebody tweets and the press releases is coming out tomorrow saying that now it's all okay, we can travel through. The first vessel that goes through can potentially buy, you know, Iraqi oil with a $30 discount to Dubai or Brent. That's $60 million right there. So I think kind of that's the, you know, that's the motivation, you know, having the ability to be able to move quickly, to take the first barrels as opposed to having to call frontline and ask us for a rate that has huge value. And the alternative is that if they went in to compete with, say, us in the Atlantic market, that vessel would be gone for 70 to 90 days. And then they really have to call us if they need freight out of the Middle East Gulf quickly, kind of. So I think I would assume that's the analysis behind this. And since the cost on holding these vessels is not like a current market costs, it's a time charter contract that was agreed years ago, I think the cost to keeping that option is manageable. But of course, what happens tomorrow is impossible to say.

Sheryl Elmograbi (Equity Analyst)

Great color as always. Thank you, Lars. Thank you.

OPERATOR

Thank you. Our next question comes from the line of John Campbell from Evercore. Isi, please go ahead.

John Campbell (Equity Analyst)

Close enough. Good afternoon, Lars and Inger lars. These slides 9 through 11 are really fantastic. Ton of detail. Super interesting. Haven't seen it laid out this way before. My question is if the impact from the fleet on slide 9 is only 11 VLCCs, and then 10 and 11 kind of net themselves out, like you said, like, the loss of volume is obviously negative, but the ton mile impact is almost a complete offset. It feels like the utilization then overall should be relatively balanced to before the straight close. Yet, you know, rates have obviously been incredibly strong. You have the theoretical ones, but then you also have the real ones as well. So what's the differentiating factor that takes what looks to be a balanced outcome versus three months ago and has put rates into the stratosphere?

Lars

I think, again, it's the biggest X factor and we didn't see this coming at all. What's the amount of vessels that seem seemingly for kind of, you know, it's not like obvious economical reasons sit unutilized. So I Think that's kind of, you know, the ton miles do amount to a lot. I think people are surprised by the amount of volume Saudi has been able to ramp up the Yanbu loads with. But I don't think you can get away from the fact that we have this kind of, you know, non-economical for different reasons. The part of the fleet that remains unutilized is the biggest kind of factor in here because even we did not believe that what's happened or Transpired over since 28th of February could be bullish. VLCC or neutral to VLCC.

John Campbell (Equity Analyst)

Okay. You spoke on slide 13 about the likely endgame, and I think that most people would agree with you that that's most likely. Certainly the stock market acts that way and Frontline's always been positioned obviously to maximize spot market exposure. If we were to consider the other endgame, which is continued and escalated hostilities and maybe a more permanent closure of that waterway, how do you think about how you manage risk in that outcome? Again, I know we have to lean towards the likely outcome and what the market's telling you and the Friday afternoon tweets, but have you thought about managing the fleet or even the balance sheet in a different manner just in case that unlikely tail risk emerges from this unprecedented time?

Lars

Yes, we have, I think, although kind of, you know, we've done some more kind of time charter coverage, particularly so on the VLCC is kind of during Q1 and also continuing. And I think kind of, you know, the first iteration of that was basically we looked at unprecedented market prior to the Hormuz closing. So of course we didn't know that was going to happen. But what's happened in the aftermath is that we've actually continued to secure trade short term coverage, like one year coverage on the VLCC to the point where Inger has a table in there. We're closing on 30% of our voyage days for VLCC for the next 12 months or thereabouts, or at least for the first couple of quarters being covered by time charter contracts. We've always kind of communicated this. Our proposition to us investors is to try and give you a spot exposure. But of course, at certain points in the curve, we'll try to cover. And that's of course to try and prevent ourselves from going bankrupt should we be wrong. So I think that is the answer to your question. We could kind of be all spot at this point in time, but we're actually very close to 30% of our voyage days on VLCC, which is the most exposed segment we believe for a long term closure, in case, you know, nothing is sold there.

John Campbell (Equity Analyst)

Yeah, that's great. All right, thank you, Lars.

Lars

Really helpful. Thanks, John.

OPERATOR

Thank you. As a reminder to ask a question, you will need to press Star one and one on your telephone, that is Star one and one to ask a question. We are now going to take our next question and this one comes from the line of Devin Sangoy from TEJ Investments. Please go ahead.

Devin Sangoy

Hi Lars. I just want to ask you two questions. First one is that we've seen a lot of countries have used reserves, crude reserves, what they had because of the disruptions and if they have to go back to the previous reserves, previous to this war and how the demand will shape up even if the war is over.

Lars

Well, kind of, you know, this is the big. And if I got your question correctly, you're asking basically how will this market look look when it normalizes? Right? Yeah. Yes, yes. So in our world, and of course we lean on analysts that actually knows this properly, I don't think we'll see kind of Middle East exports resume to levels prior to the closure anytime soon. I think that will take time. You will have an initial kind of flow of oil coming out. First of all, the vessels that are already laden, secondly kind of barrels that sit in tanks inside the Gulf currently and then new production is going to be coming on. For some of the exporters, this is of course a liquidity thing so that they want to, to get as much oil into the market sold and get some cash as soon as possible. At the same time, you'll also have this, what we believe, high probability of Iranian crude also being a compliant crude when this happens. And mind you that that's one and a half to 2 million barrels there as well coming from Iran that needs compliant tonnage. But as we move forward here, I think if I was a refinery in the Asia or a short kind of oil entity in Asia, I would kind of, the minute I filled up my inventories, I would start to basically spread my risk on how I procure oil going forward. So I think that could kind of create a more long term situation where we see kind of these longer old school Thomas become more and more stable as we proceed. So kind of the opening scenario, I think it's very difficult to paint a bleak picture for tankers. There could also be the possibility to paint a quite bullish picture for oil price basically because you need all this inventory build, you will not get production back overnight. There will be a bit of a shortness on oil as well going forward. But I think the point that we cannot get away from is that this whole situation which has now lasted for 12 weeks or whatever on counting, it's also a huge kind of push for energy diversification by way of looking at other kind of energy sources like nuclear, wind, gas, what have you, maybe not gas, but at least solar then. So it's so kind of this is actually a push towards long term energy transition. But I think kind of that's five years out. It's not something that we need to think about right now. But I think kind of the short term scenario is how I describe it.

Devin Sangoy

And the other thing is that India contracted today from Venezuela and after this war is over the 20%, which is a huge dependence of lot of countries, especially India, China, which is taking it from Middle east, they would like to diversify. Does that permanently change the tunnel demand and the tun mile travel for the ships, especially the large ones?

Lars

Yeah, I believe so. And I think this is also the root cause for some of the interest we're seeing from kind of these Asian industrial players that they actually are trying to access the time charter market, taking ships for delivery in 27, 28 and 29. So I think that's kind of the long game in this, that they are there to try and commit themselves for oil supply contracts from Latin America, West Africa and US and then basically need to secure tonnage against those contracts.

Devin Sangoy

So does it mean till FY29, calendar year 29, you're going to have a very strong or a stable high rate scenario for the ship?

Lars

I think that's impossible to say to be quite honest. You know, we see that the freight markets and the period markets are backwardated. So you know, kind of a year contract for a vessel delivering fairly soon is around $120,000 per day. The minute you do two year contract, you talk about 93 year contract, 75, 76. And then if you kind of go out and do a five year deal for delivery 20, 29, you're down in the 40s so it's. Yeah,

Devin Sangoy

thanks a lot Lars. All the best.

Lars

Thank you.

OPERATOR

Thank you. There are no further questions for today. I will now hand the call back to Mr. Lars Barstadt for closing remarks.

Lars

Yeah, again thank you very much for listening in. It's quite hectic political landscape we're working under, but rest assured Frontline is focused on trying to collect cash as we proceed there and it looks pretty okay for now. Thank you.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.