Frontline Ltd

NYSE:FRO

Earnings Call Transcript 2021-Q4

[Lars Barstad, CEO]

Thank you, and good morning and good afternoon to anyone or everyone dialing in. Welcome to Frontline's Fourth Quarter Earnings Call. We continued our stride through what ended up being a somewhat less exciting market than expected. And towards the end of the third quarter, we actually started to see a recovery in demand for freight as exports volumes grew, which was continued into the fourth quarter, but regretfully, it was not enough to move the needle in the vessel supply and demand equation to make a significant change in rates in absolute terms. So I think we'll just move straight on to the highlights on Slide 3. Sales in the fourth quarter, Frontline achieved [$6,500] per day on our VLCC fleet. We had $14,200 per day on our Suezmax fleet and $13,900 per day on our LR2/Aframax fleet. So far, in the first quarter of 2022, we have booked 58% of our VLCC days at $21,300 per day, 65% of our Suezmax days at $19,600 per day, and 56% of our LR2/Aframax days at $18,800 per day. All numbers in this table are on a load to discharge basis. And our thinking in order to make it clear to all listeners, how we achieve these numbers when the benchmark indices are reported to show negative numbers, I'd like us to quickly move to Slide 4. So we've said time over again that Frontline has a large diverse fleet of modern tankers. And it was kind of made clear to us today in the call this morning that we should elaborate further on this. And the thing is with these indices that are supposed to represent the market performance, these are based on a methodology that is somewhat old-fashioned, because the modern tanker will trade very differently from an older tanker. And the economics of a modern tanker, and if you add the scrubber, is extremely different now with the record wide spread we have between high sulfur fuel oil and low sulfur fuel oil. So the fleet of Frontline, the average age is 5 years. 79% of the fleet are ECO vessels and 54% of the fleet have scrubbers installed. If you look at the diagrams on the right-hand side of this slide, what we've done here is basically to take some benchmark indices that are classified for non-ECO vessels, non-ECO with scrubbers, ECO vessels -- pure ECO. No scrubber. These are normally the vessels built after 2015 and an ECO with scrubber. And based on the average in Q4 '21, you can see on the VLCC side that the non-ECO, non-scrubber non-nothing, will achieve [$5,400] per day according to the index. But an ECO with scrubber will achieve a premium of $12,500 per day, which is basically created by lower fuel cost. And it goes on, on the Suezmaxes and LR2s. And it's this you need to keep in mind when you look at Frontline after share. We both have a very modern fleet, and we have very low cash breakeven levels. So with that, I'll give the word to our CFO, Inger Klemp.

[Inger Klemp, CFO]

Thank you, Lars, and good morning and good afternoon, ladies and gentlemen. Then I think we should start or turn to Slide 5 and look at the income statement. Frontline achieved total operating revenues, net of expenses of $101 million in the fourth quarter and had an adjusted EBITDA of $61 million. We report net income of about $20 million or $0.10 per share and adjusted net loss is about $5 million or $0.02 per share. The adjustments that we have made in this quarter are different items. We have a $5.3 million gain on derivatives. We have a $0.5 million loss on marketable securities, a $5.1 million gain on sale of vessels, the recognition of the distribution from DNK of $13.4 million after tax and also $1.3 million of amortization of acquired time charters. Adjusted net loss then in the fourth quarter decreased by $31.1 million compared with the third quarter. And the decrease was driven by an increase in our time charter equivalent earnings due to the higher TCE rates and also a [voyage] reduction in ship operating expenses. This was partly offset by an increase in interest expense and depreciation due to delivery of 3 vessels in the fourth quarter. Let's then take a look at the balance sheet on Slide 6. The total balance sheet numbers have increased with about $113 million in the fourth quarter. The balance sheet movements in the quarter are primarily related to the taking delivery of the LR2 tanker from [indiscernible] in addition to ordinary debt repayments and depreciation. As of December 31, Frontline has $181 million in cash and cash equivalents, including undrawn amounts under our senior unsecured loan facility, marketable securities and minimum cash requirements. So remaining CapEx, new building CapEx of $437.4 million as per December 31, is fully funded by the $319 million in committed debt and also by part of the net cash proceeds of $68.6 million for sale of 4 LR2 tankers. The company has no debt maturities until 2023. Then please move to Slide 7, cash breakeven and cash generation potential. We estimate average cash cost breakeven rates for 2022 of approximately $22,700 per day for the VLCCs, $18,900 per day for the Suezmax tankers, and $16,000 per day for the LR2 tankers. The fleet average estimate is about $19,300 per day, and includes drydock of 16 vessels in 2022 with an impact of $740 per day. The distribution of the 16 vessels is 5 VLCC, 5 Suezmax tankers and 6 LR2 tankers. These rates are the all-in daily rates. Our vessels must earn to cover budgeted operating costs and drydock, estimated interest expense, TCE and there higher installments on loans and G&A expenses. We recorded OpEx expenses in the fourth quarter of $7,600 per day for VLCCs, $6,900 per day for Suezmax and $6,100 per day for LR2 and we drydocked 1 VLCC, and 1 Suezmax tanker in the fourth quarter. Then the graph on the right-hand side of the slide shows the free cash flow per share after debt service and free cash flow yield basis current fleet and share price of February 16 as alternative TCE base. If we think about the slide that Lars went through on Slide 4, I think it was with respect to how our fleet based on ECO and scrubber adjustments, show a very premium TCE rates that is also used in this slide. So based on historic tracks in the TCE rates for non-ECO vessels in the period 2000 to 2021, adjusted then for premiums on scrubbers and ECO vessels, Frontline has a free cash flow per share of $2.44 and a free cash flow yield of 32%. The free cash flow yield potential increases, of course, with higher assumed TCE rates and also on a fully delivered basis. With this, I leave the word to Lars again.

[Lars Barstad, CEO]

Thank you, Inger. Let's move to Slide 8 and do a recap on the Q4 '21 tanker market. As we see the headwind there, and we'll start there. Oil in transit is approaching the heights of 2018 and 2019. If you look at the graph in bottom, and in particular, the dark blue line where you have a red circle, you'll basically see the dots of volume of oil in transit gradually increasing throughout the fourth quarter. Just a small note, if you look at the yellow line on the left-hand side of the chart, that's actually January and preliminary numbers for February where we are now. Global oil demand was estimated to average 99.7 million barrels per day in Q4, and that's an increase of 1.5 million barrels per day compared to the third quarter. But we continue to draw on inventories, and this to the tune of 1.4 million barrels per day during the fourth quarter as demand continues to outpace supply. And I'd like to make a comment there, because if we rewind 12 months, when I was sitting here having this call, I was being very optimistic and primarily due to the fact that we were expected to stop growing on inventories in August, which basically bolded for an interesting second half of the year. Well, that hasn't happened, and we continue to draw way beyond anybody's expectation. Projected demand growth for 2022 will predominantly be non-OECD, if 1 believes EIA's numbers, and we're going to reach very close to 103 million barrels per day by the end of the year. The current oil price signals tightness in the market. There are production issues or have been in Libya, Nigeria, Angola, and overall, the OPEC Plus is over compliant. This means that when they have kind of pre-decided production levels, they're actually not able to reach them. So basically, the unwinding of the OPEC Plus cuts is going much slower than expected. But nevertheless, oil in transit has continuously risen since October '21 and is now up 20% from those. And this could be pretty directly equated to tanker demand. So basically, tanker utilization is improving. Despite increased activity and these growing volumes, we have yet to reach the turning point for rates. So let's move to Slide 9 and look at the tanker order books. And this is an obvious 1 as vessels are delivering and no orders are being placed, the order book is shrinking. And we also have this very unusual situation where 6% of the global VLCC fleet is now above 20 years. 2022 is indeed a large delivery year. But by the end of '22, there will be more than 80 VLCCs due for recycling in the same period. And we have a big question mark on net fleet growth in the end as this plays out. Suezmax, same picture, with 12% of the fleet or 72 vessels are passing 20 years -- are either above or passing 20 years in 2022. The LR2 order book is more populated, but again there, 15% of the fleet will pass 15 years. And the thing with LR2s is that they're obviously useful lifetime is far more than 15 years. But in the clean trade, charters do not prefer a vessel that's older than 15 years to carry a clean cargo, basically due to the fear of contamination. So it means that an LR2 above 15 years will normally move or kind of change to become an Afromax. The VLCC, Suezmax, and LR2 order book stands at 8%, 7% and 13%, respectively, and more importantly, meaningful capacity for new tanker orders is now moved out to 2025. Let's move to Slide 10 and dig a little bit further into the current fleet composition. And here, I've been looking at the tankers that we are exposed to, the asset classes that we hold. And as you all know, by 2023, IMO will impose new measures. We like to refer to them as tickets to trade. We're going to get Refrigerator Ratings on all vessels in the world. And for those of you who looked at those, it's A, B, C, D, E, which is basically the range. And you need to be C or better in order to get the ticket to trade. The Frontline's own fleet overall weighted carbon intensity rating is A basis the 2021 data. But if you look at the chart to the left, you'll see how many ships in the tanker fleet. But firstly, the ones that are over 20 years are challenged in the first place, 6% of the fleet. If you have the ones that will be efficiency challenged basically per facing an EEXI rating, which is below C, you can add another 17%. If you look at the non ECOs that do struggle to trade economically in the current oil price environment, you're getting up to another 29%. CII is mentioned a few times on this chart, and CII is a measure for a vessel's carbon intensity and its average emission per volume transported. A vessel's carbon intensity it's important to charters. If you are going to charter the vessel, if they have carbon footprint policies or when they have. This is also relevant measure when we talk about carbon tax and the potential of shipping entering the European ETF trading program. So basically, I think we all can agree that the global fleet of VLCC, Suezmax and LR2s is somewhat challenged over the next few years. The only -- or the most efficient measure you can apply in order to reduce your CII as in carbon intensity is speed. So basically speeding down will basically reduce your carbon footprint. But to deal with EEXI, you would actually need to do a physical work on the vessel. You'll basically need to cap its ability to produce power, which ends up reducing speed as well. And it's important to note there that the Frontline fleet, we don't foresee any challenges with regards to maintaining out of the IMO trajectory until at least 2025. So next move to -- let's move to Slide 11. And tanker recycling. This is basically a bit that's been missing in our market for a while. But with record high recycling steel prices, activity is finally looking to accelerate. The last 2 big recycling years were 2017 and 2018. Now in 2021, we actually have seen 2.3% of the overall tanker fleet above 10,000 deadweight, which is basically a measure for the carrying capacity of the tanker fleet, being reduced by 2.3%. And we believe this trend will have to continue. The aging fleet is severely challenged in the compliance spot markets and alternative use or opportunities for older tankers. And this is typically for storage or conversion is virtually nonexisting. If you look at the bottom graph there, recycling steel prices, I, in fact, tried to find longer history to see if we've ever been at these levels, and I simply couldn't find it, at least in the history, I could access. So we believe this combination of the regulatory challenges, which I described on the previous slide, the very challenging market for non-ECO vessels and the recycled steel price should produce a positive outcome for a tanker owner. Let's move to Slide 12 and look at Frontline and how we are addressing the ESG. As I think I mentioned, a few quarters back, Frontline started its project, which we call The Decarbonization journey towards IMO 2030 and 2050, we started that in 2019 already. And the first thing we did, which we refer to as the Veracity platform was basically to find out where are we now. And this includes digitalization. This includes making us able to record live from every vessel we control and feed that into a database where we can analyze not only carbon, but also the speed and consumption and incidents on all our vessels, basically to find out where we are. And that's where -- when we have that, in 2020, we started to plan for how do we improve it. What we have in the first place, 1 of the youngest and most energy-efficient fleet in the industry, and we're obviously at all times in compliance with increasing regulations and we are making strategic initiatives towards decarbonization. With, amongst other things, then successful trials of low-carbon marine biofuel. Frontline targets to reduce our carbon emissions by 3% per year, which equates to about 55,000 metric tons. The thing is why this actually works is that it also automatically gives us an increased earnings potential. And I don't think I need to go into depth that we actually -- we do share the UN sustainable development goals and the Seafarers Wellbeing. We publish our ESG report, obviously, every year, which I encourage all the listeners to have a look at. We also, of course, do what we refer to as sustainability accounting following the SASB principles. So let's move to Slide 13 and try to sum it up. So demand and supply of oil continues to rise. The Omicron version seems to have a far more modest impact than we could have feared. Tanker markets have, in fact, recovered since Q3 '21, but obviously to a modest degree, far too modest for our liking, and we're still challenged by oil supply, not fully at pre-pandemic levels. Tanker recycling. As I mentioned in this presentation, is finally starting to make an impact on the vessel supply. And there is a lot of moving parts in addition. We have seen U.S. SBR releases. We -- there is now discussions about the OPEC strategy going forward. And we have the Iranian nuclear talks. So there's a lot of moving parts. Oil in transit continues to rise. Energy prices are at a record highs and our oil is now flirting with $100 barrels per day. And how that's going to affect what I mentioned just now, with regards to the SBR releases, with regards to OPEC strategy and with regards to the OPEC -- Iranian nuclear talks is creating some very interesting dynamics. And lastly, that the lead Frontline financial commitments are fully funded, and we've done so with the reduced overall financing costs, and we think we're well positioned as the story of this market unfolds. With that, I think we'll open this call for questions.

[Operator]

[Operator Instructions] We have the first question from the line of Jon Chappell from Evercore.

[Jon Chappell, Evercore]

Lars, first thing I want to ask you about, you brought it up in the presentation in the press release, is that OPEC is obviously having a difficult time getting to their production quotas, not Saudi Arabia, not UAE, but there are some other countries with probably some more structural issues. As you think about the supply that the tanker market needs to catch up with this recovery in demand and countries in West Africa and other places can't really meet their quotas, where do you foresee this coming from, especially as the U.S. companies try to be more disciplined? And could it be an issue where the inventory drought lasts a lot longer than anticipated, because we can't respond to that increase in demand with global supply?

[Lars Barstad, CEO]

Yes. I realized it was a question, but you basically answered it a little bit yourself. So the obvious answer where you actually could relatively quickly have increased supply. And basically, what we need is increased exports. That is obviously the U.S. But the discipline amongst U.S. producers have been so far, well, not good for us, but good for the oil price. And if that continues, this is a challenge. Obviously, you still have barrels in the Middle East countries. I would assume, otherwise, we are in a lot more trouble than we'd like to think of. So I think kind of that's the likely initial phase should we continue to be where we are now or the oil price should even rise further. I think OPEC will have to basically open the taps completely. And OPEC, although they would like to have a very, very high oil price, I also think they have a huge respect for demand destruction and oil price significantly north of 100 that will put us in that position. So that's kind of my thinking here. I also think that if we are in a situation where U.S. doesn't grow more kind of, I believe, EIA has about 800,000 barrels per day of U.S. production. Regretfully, U.S. demand is also rising quite rapidly. So we don't know how much is going to be left for exports. But I think kind of you have a huge incentive to get something done with Iran. So yes.

[Jon Chappell, Evercore]

Well, that Iran thing kind of led to my second part, my second question as well. I mean you've been pretty public calling out the illicit trading fleet, a pretty interesting graph in here showing the difference between the non-ECO, the ECOs with scrubbers and then also the whole thing on the IMO 2023. It feels like that there's so much optimism in the market. People are reluctant to scrap older ships, because they're fully paid off and they can make a good return on the recovery. At what point do either regulations, economics or maybe more importantly, just vettings and charters, I assume you speak to the biggest ones, really put their foot down and force more removals of 15-plus-year-old ships?

[Lars Barstad, CEO]

Well, I think if you speak -- we need to speak, there are 2 different markets there. So in the compliant market, the big charters are already doing this. So in the compliant tanker market, which we are the part of, we are under scrutiny every day. And we obviously are doing all we can to protect ourselves from being exposed to sanction [indiscernible] activity. But you have a parallel market here that is making a lot of money. The reason why they make this money is, because sanctioned crude is discounted crude. But as long as that discount is there, you have an incentive to trade kind of sanctioned crude. So in my kind of simple analysis, that's where you need to -- or that's how we can address this issue. So in an event of, say, sanctions being lifted against Iran, all that volume will need to go on compliant vessels, because the normal customers of Iran -- and mind you, historically, that's been type India, Northwest Europe, Korea and so forth, they simply cannot take that oil on a vessel that doesn't have its compliance in order. So that would be a massive trigger to the demand for compliant tankers. And I think that would be the death blow for this shadow market to go that way.

[Operator]

The next question is from Randy Giveans from Jefferies.

[Randy Giveans, Jefferies]

So looking at your fleet, let's start there. You agreed to sell the 4 LR2s all delivered to the new owners. Thoughts on further asset sales as the asset values, right, continue to outperform spot rates?

[Lars Barstad, CEO]

Yes. No, this is obviously an ongoing discussion. We have -- as you're all aware, we have -- we've done some investments on the VLCC side over the last year. We have to look at various avenues of kind of raising equity for that. We have done this for 2 sales, because we thought it was a very good opportunity at the time. And we'll continue to look at various opportunities. But I would say that this was potentially a very kind of favorable both deal structure and time for us to do so. So it shouldn't be regarded as a complete change of how we think about the market. We would ideally like to keep as much earnings potential as we can, but we do believe that or have historically seen that we get most bang for the buck in the VLCC market. So -- but right now, we don't have any immediate plans of further kind of selling LR2s or Suezmaxes for that sake.

[Randy Giveans, Jefferies]

Got it. Okay. And then your quarter-to-date rates. Suezmax and LR2 are above breakeven, VLCC is still below. Any thoughts on catalyst to really move those higher? And in the meantime, while we wait for the spot market to move, are you looking to maybe sign some 6-month, 12-month time charters to secure some cash flow?

[Lars Barstad, CEO]

Well, I'll take your second question first. So we are of the opinion that freight markets are I mean reverting and the history shows us that they are. And obviously, each top line, each bottom has different durations. And obviously, then we are somewhere in between. We don't see this as a time where you secure cash flow by doing long time charters. So we would rather do that. If we are to do that, it's going to be at a different point in the cup. And we don't feel we're forced to do it, because we have a solid financial position. And we also have a fleet that actually gives us kind of some comfort in these really dire markets. As to the different earnings on the different asset classes, as you well know, this is related to basically what trades are working in the oil market. And what the Suezmax show is that oil has to a large extent been trading relatively short. I'm not going to go too deep into details, but 1 effect of the energy crisis in Europe on natural gas means that refinery margins have been under pressure in dealing with high sulfur crude. So it means that the natural home for U.S. barrels has been Europe, and that's predominantly a Suezmax trade. And this then hurts the VLCC trade. And also, the VLCC market is exposed to the fact that the majority of OPEC increases recently is coming in the Middle East. And obviously, Middle East is closer to the key market being Asia, and ton miles has basically suffered for that.

[Operator]

The next question is from Magnus Fyhr from H. C. Wainwright.

[Magnus Fyhr, H. C. Wainwright]

Just a question on the dry dockings first. I guess you mentioned 16 ships due for dry docking in 2022. Should we expect them to be dry-docked evenly through the year? Or do you try to speed up the dry docking given your positive market outlook?

[Inger Klemp, CFO]

The plan is actually now 4 in the first quarter, 5 in the second and the third quarter, and then 2 in the fourth quarter. That is the plan. But we can obviously try to adjust in line with market -- what's in the market in a way.

[Magnus Fyhr, H. C. Wainwright]

Okay. And I think you mentioned about $740 per day for dry docking. Is that -- is that around $20 million for those 16 vessels?

[Inger Klemp, CFO]

Yes, it's a bit less than, it's about just below $18 million.

[Magnus Fyhr, H. C. Wainwright]

Okay. Very good. And just a question for Lars, maybe. The -- I mean rates I think you guys booked really strong rates during the quarter, and some of that was due to recognizing, I guess, from a revenue standpoint. But going forward, and with rates -- and thanks for laying out the premiums compared to non-ECO, but going forward, are you booking similar rates now that you did in the first quarter? I know the market has been weaker here in January, February. So just kind of get a feeling for if that premium is still there.

[Lars Barstad, CEO]

For the VLCCs, no, regretfully. So I think 1 has to appreciate that. But on the Suezmaxes, yes, and LR2 of course, is a bit more mixed bag, I would say. The Suezmax have actually shown some promise over the last week, week-and-a half.

[Magnus Fyhr, H. C. Wainwright]

Okay. Good. And do you see with the market being a little different this year, have you seen the seasonality playing out with the 2Q, 3Q typically the lowest quarter? Do you expect the kind of steady trajection into the fourth quarter this year?

[Lars Barstad, CEO]

That's actually a really good question, because as you know, in our industry, we normally follow the seasonality. And this is a very rare seldom that we actually move out of it. I think kind of us, a lot of the challenge that we have in the tanker market is actually a reflection of the really, really tight supply situation in the oil market. I think we could, in theory, get very -- we could kind of quickly end up in a very typical market basically due to the fact that a OPEC increase more than planned, something happens on the Iranian side. And basically, we -- I mentioned earlier, we're still growing from inventory. And I think if you look at oil curve, it's quite obvious why, because crude today is as expensive as it has ever been to work compared to crude delivered, say, in May. So the backwardation is super steep. And should something happen to that curve, you would actually start to see inventory start to build again. And it's basically a rapid change in the oil curve would trigger a lot of activity. And it's actually almost scary looking at the political tension between, for instance, Ukraine and Russia, that the rest of the world peers run on such low inventories. When you are in the bag is potential action against 1 of the biggest oil producers in the world.

[Magnus Fyhr, H. C. Wainwright]

All right. And you mentioned that most of the barrels from the U.S. have gone to Europe, given that OPEC has been supplying Asia with crude. If OPEC starts struggling, increasing production further, can you see a scenario where actually sale production starts increasing more and that incremental barrel is going to the Far East?

[Lars Barstad, CEO]

Absolutely. And I think it's -- I know where you're calling from, and it's something which is almost like at least we look at as a little bit ironic. What we've observed is that there is a correlation between U.S. SBR releases and U.S. exports. And those exports tend to end up in Asia. So basically, obviously, it's not the same molecules, but what you do when you release from an SBR is that you make crude available in the local markets in the U.S. and then obviously allow players in the U.S. market to export more. So it's kind of an indirect supply into strategic kind of inventory in either Japan or China or even Korea. So that's basically what's been the backbone of the VLCC trade in Q4 and to some extent, into January was actually this increased exports from the U.S. Gulf that was landing in Asia.

[Operator]

The next question is from Chris Tsung from Webber Research.

[Chris Tsung, Webber Research]

First question I wanted to ask is just to touch on your presentation from Slide 4 shows that in your fleet, there's 3 non-ECO vessels in the chart on the right that you guys laid out shows there's a significant premium with non-ECO vessels with scrubbers. So I just want to ask, is there a plan to install [indiscernible] these 3 vessels -- or perhaps would you look to sell them as it looks like the average TCE in Q4 for nonequal which covers still below cash breakeven levels?

[Lars Barstad, CEO]

Well, this is an ongoing kind of discussion. And obviously, having non-ECO, non-scrubber is you basically choose do we sell them or do we install scrubbers to move them basically up the chain? So I can't answer that on this call, but I'd say it's a valid question. And it's kind of being discussed. I think on the -- we like to call it the scrubber spread, right? And kind of spread between high sulfur fuel and low sulfur fuel has obviously widened immensely in the last 5 to 6 months, basically making it very economic to install a scrubber. But then again, there are practical considerations to be made taking a ship out of the market, which doesn't really matter too much in this market. But then you need to find a yard and you need to time it and all that stuff. But I assure you this is extremely high on our minds, particularly for those vessels.

[Chris Tsung, Webber Research]

Great. And just 1 more follow-up from the 6 VLCC new builds. Do you have an updated time line or schedule? Just trying to get a sense of the cadence for the deliveries.

[Lars Barstad, CEO]

Yes. The first 1 will be delivered in Q2, the end of Q1, but it's April -- early April. So yes, and the rest will be obviously not -- we're not pushing for to have them as quickly as we can yet. So they will be coming as pearls from a string in the second half of the year.

[Operator]

We have the next question from Greg Lewis from BTIG.

[Greg Lewis, BTIG]

I apologize if this was already asked, I was having trouble getting on. Just given Frontline's exposure and ownership of scrubbers, clearly, the spread between high sulfur and low sulfur is widening. Are you hearing or seeing or at all concerned about availabilities of either grades just as oil demand has picked up, or any kind of color you could give around that and how you're thinking about that through the rest of the year?

[Lars Barstad, CEO]

Well, we haven't kind of -- availability hasn't really been a big issue. But it has from time to time in certain ports kind of been -- such a situation that we actually need to book further ahead. And this is more related to the players in the bunker market, not wishing to hold inventory in a steep backwardation. So basically, they will try to limit what they hold and wait until basically an order has been placed for a certain amount of bunkers. So this is creating some issues, but you are right in certain places, high sulfur is actually difficult to come by. So -- and -- but I think this is actually expected to ease as we move out of the winter in the Northern hemisphere, because some of the tightness in this market has been caused by straight-run fuel go into the power generation pool, as gas prices have been so high. So I don't know if that answers your question, but so far, we haven't seen kind of incidents where it's impossible to get hold of fuel to be.

[Operator]

We have the next question from Robert Silvera from Silvera Associates.

[Unidentified Analyst]

My question is this, at what level do you see rates having to go to before you will reinitiate or initiate a dividend again -- cash dividend?

[Lars Barstad, CEO]

Well, that's actually a difficult question to answer. I think historically, we don't have like a fixed dividend policy, right? But we have -- it's more at the Board's discretion. But history shows that whenever Frontline has a meaningful positive net income, we will distribute dividends. And then I think you basically need to look at our cash breakeven levels, which are all-in cash breakeven, and that could maybe give you some guide to what levels you should kind of look for. And that's $19,300 on average over the fleet, but the minute VLCC start meet to make meaningful kind of earnings above $22,000, $23,000 a day, and say, $19,000 for the Suezmax and $16,000 for LR2, Aframaxes, that's when we get into a position where we can start to distribute money.

[Unidentified Analyst]

Do you feel that it would be like a 10% above those levels when you might initiate the dividend again? Or would it be only 5%? Can you give us some color on that? What level of...

[Lars Barstad, CEO]

Yes. No, I wish I could to be quite honest. But it's -- I think I would ask this or answer this question a bit differently. The -- if you kind of -- Frontline will always try as hard as we can to pay out dividends. And we've actually had incidents we pay out dividends in a quarter where we have not really made money, because we have visibility into the earnings in the following quarter. So I wouldn't doubt the aggressiveness of Frontline in paying out dividends for shareholders, but I don't really want to get into a percentage discussion, if that's okay.

[Unidentified Analyst]

That's okay. I miss the days of 2003 and '04.

[Inger Klemp, CFO]

So do we.

[Operator]

There are no further questions at the moment.

[Lars Barstad, CEO]

Okay. I think we'll wrap it up. Thank you very much for listening in, and have a good evening and a good day to everyone.