Frontline Ltd. (NYSE:FRO) Q3 2019 Earnings Conference Call November 27, 2019 9:00 AM ET

Company Participants

Robert Hvide Macleod - Chief Executive Officer
Inger Klemp - Chief Financial Officer

Conference Call Participants

Jonathan Chappell - Evercore ISI
Gregory Lewis - BTIG
Randy Giveans - Jefferies
Michael Webber - Webber Research & Advisory LLC
Erik Hovi - Clarksons Platou Securities AS

Operator

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to today’s Q3 2019 Frontline Limited Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I must advise you that this conference is being recorded today Wednesday 27th of November 2019.

I would now like to turn the conference to your speaker today Mr. Robert Macleod. Please go ahead, sir.

Robert Hvide Macleod

Thank you very much, operator. Dear all, thank you for dialing into Frontline’s earnings call for the third quarter. We find the market very favorable at present. It looks to have turned in our favor, and the second half of 2019 represents completely different fundamentals and earnings compared to the first half.

Let’s go straight to the first Slide please and look at Q3. We reported net loss of $10 million, or $0.06 per share. Earnings were $22,900 on Vs, $16,200 on Suezmaxes, and $15,900 for LR2s. Q4 is at completely different levels, with Vs showing close to 65,000 on days booked, Suezmaxes almost 50,000, and LR2 around the 30,000 mark. As you’ve seen in the report, we do expect this to fall or this will fall as we book the ballast days towards the end of the quarter.

On these numbers, I would like to highlight Suezmaxes. We held back most deliberately in the Atlantic in Q3, in anticipation of stronger fundamentals. This explains relatively low numbers for Q3, but a great start to Q4. I think it’s important to always look at earnings over time not just one quarter and always have a clear chartering strategy.

The support from our largest shareholder is unquestionable. The $275 million facility was rolled until May 21. Inger has done a great job securing commitment from ICBC to finance the 10 Suezmaxes we acquired in Q3, and you can expect cash break-even for Suezmaxes to soon drop.

The Board also declared at its discretion a $0.10 dividend for Q3, despite the loss in the quarter, and we expect Q4 to show more cash to our shareholders building on the $6 billion worth of dividends we have paid since listing in the U.S.

With that, I’ll hand it over to Inger.

Inger Klemp

Thanks, Robert, and good morning and good afternoon, ladies and gentlemen.

Let’s then turn to Slides 4 and 5, and look at the financial highlights and the income statement. Frontline achieved total operating revenues net of voyage expenses of $94 million, and EBITDA adjusted for certain non-cash items of $43 million in the third quarter.

Frontline reported a net loss of $10 million equivalent to $0.06 per share and a net loss adjusted for certain non-cash items of $10.1 million, equivalent to $0.06 per share in the third quarter.

The non-cash items this quarter consisted of $0.7 million unrealized gain on marketable securities, a $2 million share as a result of an associated company, and a $2.6 million loss on derivatives. The third quarter shows a decrease of $13 million against adjusted EBITDA of $56 million and a decrease of $14.1 million against adjusted net income of $4.1 million in the second quarter of 2019.

The decrease in net income in the third quarter of $14 million is mainly explained by a decrease in result on time charter basis of approximately $7.4 million due to the lower reported TCE rates in the third quarter compared to the second quarter, and an increase in operating expenses of $6.1 million, mainly explained by increase in dry dock costs of $4 million in the quarter.

Let’s turn to take a look at the balance sheet on Slide 6. The changes to the balance sheet as of September 30 from June 30, mainly relates to an increase in cash and cash equivalents of $17 million, which is the net effect of CapEx payments, repayment of debt, drawdown of debt, cash flow from operations, and proceeds from issuance of shares under the ATM program. Then, we had an increase in vessels of $323 million, mainly due to the initial recognition of the right-of-use assets for five of Trafigura vessels, which are treated as finance leases on our lower balance sheet.

The all five Trafigura vessels chartered back to Trafigura will be brought on to the balance sheet only upon closing of the transaction. This is due to that, according to U.S. GAAP the charter-in and charter-out agreements cancel out each other, and we don’t obtain the right of use of these vessels in the period between signing and closing of the acquisition.

Then, we have an increase in the long-term assets of $17 million, which is mainly related to the prepaid consideration in relation to the shares issued for the five Trafigura vessels that are chartered back to Trafigura and hence not accounted for finance leases.

Then, the next items is that we had a decrease in debt of approximately $30 million in the quarter which is due to repayments. We had an increase in obligations on the finance leases with approximately $270 million, mainly due to the initial recognition of the right of use assetss of the Trafigura vessels treated at finance leases, which I mentioned, and then an increase in equity of $165 million, mainly due to share issuances in relation to the Trafigura transaction, and in relation to the ATM program, offset by a net loss in the third quarter.

As of the end of September, Frontline had $274 million in cash and cash equivalents, including the undrawn amounts under our unsecured loan facilities, marketable securities, and minimum cash requirements.

Our remaining newbuilding CapEx requirements as of end of September amounted to $222 million related to one Suezmax tanker and one VLCC, which are both expected to be delivered in May 2020, and also the two LR2 tankers, which are expected to be delivered in January and March 2021. We estimate approximately $175 million in debt capacity for these newbuildings, and we have no near-term debt maturities.

Then, let’s take a closer look at cash break-even rates and OpEx on Slide 7. We estimate average cash cost break-even rates for the remainder of 2019 of approximately $23,400 per day for the VLCCs, $21,100 per day for the Suezmax tankers, and $16,100 per day for the LR2 tankers.

These rates are at all-in daily rates that our vessels must earn to cover budgeted operating cost and the dry dock, the estimated interest expenses, time charter, and bareboat hire installments on loans and G&A expenses. In these break-even rates , we have included dry dock costs for three VLCCs, two Suezmax tankers, and one LR2 tanker in the fourth quarter of 2019.

Frontline’s low cash break-even rate offers a strong downside time protection against the low rate environment. And at the same time, it creates a great upside potential in the strengthening tanker market.

As we have said before, every $1,000 per day in achieved rates in excess of our cash break-even rates translates to approximately $22 million in incremental cash flow after debt service per year, or $0.11 per share, which shows the high importance on maintaining these low cash break-even rates.

Turning to the graph on the right-hand side of the slide, we have shown incremental cash flow after debt service per year and per share, assuming $10,000, $20,000, $30,000, and $40,000 per day in achieved rates in excess of our cash break-even days, respectively.

As an example, assuming VLCC rates of $65,000 [ph] per day and an implied relative Suezmax tanker and LR2 tanker rate based on Clarksons 10-year average, we get to an average rate for our fleet of $46,000 per day, which is approximately $27,000 above our average cash break-even rate. Thus, in such scenario, Frontline will have a cash flow per share after debt service of about $2.98, close to $3 per share.

The operating expenses per day in the third quarter of 2019 were $11,600 for VLCC, $8,400 for the Suezmax tankers and $7,000 for the LR2 tankers. We had dry docked four VLCCs and two Suezmax tankers in the third quarter and three VLCCs and two Suezmax tankers and one LR2 tanker are scheduled for dry dock in the fourth quarter of 2019.

With this, I’ll leave the word to Robert, again.

Robert Hvide Macleod

Thanks very much, Inger. Let’s look at the key market developments, please. Sanctions caused panic in the tanker markets at the start of fourth quarter, driving freight rates to record levels. While the such was short-lived, it could not have occurred without the constructive underlying market. Counterseasonal increases in rates throughout the year have indicated that the market balance was tightening.

Setting aside at certain rates, the market has remained strong overall in Q4 and in recent weeks firmed in a more sustainable way than early in Q4, in our view. The most important takeaways are the supply demand balance in the market is tight, fundamentals are highly supportive, and we expect rate – rates to remain strong.

U.S. exports is, as we’ve discussed in the past, an important driver and ton-mile demand continues to benefit from rising U.S. exports. U.S. production growth though is forecasted to slow, but export capacity is ramping up. This will result – or it’s likely to result in more long-haul trade, as the demand pool continues to grow from the East, that is virtually where all new refinery capacity is being built.

Let’s look at the next slide and – how deliveries are declining, whilst the fleet is aging. Tanker fleet growth is obviously a key factor for the market balance. Despite the high number of deliveries recently, we are seeing strong rates, which is very encouraging. So it’s a very encouraging sign that the market finally is better balanced after years of low rates, low volatility and poor earnings.

Importantly, there has not a large increase in newbuilding orders this year, despite wide spread optimism for stronger rates. The removal of the overhang caused by a large order book is a significant development, but new orders kind, of course, quickly change this.

The pace of recycling has also slowed down, but it’s important to highlight that’s 168 VLCCs are greater than 15 years of age, which is expected to double over the current order book on VLCCs. The market is increasingly favoring modern ships or our customers are, and this trend will only increase going forward. This, we believe, will play to Frontline’s advantage, as we have one of the largest and the most modern crude tanker fleet in the industry.

Okay, let’s summarize. And in conclusion, various factors support our positive market outlook. In the short-term, rates are strong and we are generating significant cash flow, as Inger was explaining, due to the size of our fleet and our very competitive break-even levels. We believe Frontline is in an ideal position to capitalize on what we see as a new market normal.

Again, Inger was highlighting, on earnings per share off the debt services, Frontline comes out as number one. Setting aside the impact of the Costco sanctions, the market has already begun to move following extended refinery maintenance ahead of the IMO 2020.

While all these factors point to the positive, the risk of a slowdown in GDP growth continues to own the news headlines, and it’s a real risk that have added volatility to the equity markets. Also, there is always the theoretical chance that the IMO 2020 implementation will not go as expected. Soon, we’ll see the new regulations being in force. How well we don’t know yet, but we expect to see widespread compliance.

We think the market will remain at relatively high levels going forward. I do not yet see any supply side factors emerging in the short-term that would lead to a different conclusion. Although there are always risks, multiple possible market drivers should result in strong end for the year and continued strength into 2020.

Against the backdrop of an expected strong market, we believe we are well-positioned to generate significant dividend capacity going forward and to create value to our shareholders.

With that operator, I would like to turn to questions, please.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we’ll now begin the question-and-answer session. [Operator Instructions] Your first question is coming from the line of Jonathan Chappell from Evercore. Please go ahead.

Jonathan Chappell

Thank you. Good afternoon Robert and Inger. Robert, first question I have for you is on the revenue recognition. I think, you did a great job in the press release explaining just what’s happening there, and I think most quarters it makes a lot of sense. But given what’s happened in the VLCC market, especially over the last couple of weeks rates gapping up, which we would assume to mean utilization is very tight and you kind of showed it in your chart on Slide 8 as well, would it be crazy to think that there would be fewer ballast days in the end of the year because your ships would discharge and immediately be rebooked and rebooked at higher rates than what you’ve booked so far? Are you just being kind of conservative with saying that the fourth quarter rate could be lower than what you’ve already booked year-to-date, despite the market moving in the opposite direction?

Robert Hvide Macleod

Jonathan, thanks for that question. It’s very good question and it’s extremely valid. So, what I’ll do to start with, I’ll use Q2, sorry, I’d used the Q2 reporting where we guided on Q3 as an example. So back then, we guided on 83% having been fixed. And the fact is – and I don’t think this will happen probably ever again, but the fact is after we guided, we didn’t book a single cargo that loaded in Q3. So, it ended up being all the balance 17% ended up being ballast days.

It’s virtually impossible to say how many bookings we will do with loading in December, but what I can say is that we definitely will have ships loading here in the balance percentage with not just the ballast days for sure. What we’ve done in the VLCCs, for example, is that we’ve held them relatively short.

We’ve been doing over the last quarter, almost – virtually almost just the AGE strands. At present, we’ve only booked very, very few days that are loading in – or going into 2020. So, we have a lot of positions that’s opened this year. So, we will do a lot of bookings. But I can’t give you a percentage. This is what every quarter -- because of the new accounting rules, just gives the uncertainty, but I can’t say we will have quite a few bookings.

So, let’s see where it comes out in the end. But we’ve got some ammunition left, and we’ve got this ammunition left because we believe that we would run into higher rates at the end of the year. So, at least we are positioned for that, but how it’s going to be divided between Q4 and Q1, let’s wait and see. But the important thing is that the cash will be coming our way.

Jonathan Chappell

Okay, great. And I appreciate that clarity, Robert. And that was – my second question is the cash coming your way. Borrowing, if you will, from the fourth quarter to pay a dividend for the third quarter of $0.10 makes a lot of sense, given the transparency that you have on what you booked already for 4Q.

And Inger, you kind of laid out a sensitivity as to what your cash flow could be in a certain rate environment of almost $3 a share. So I just wanted to -- now that we’ve kind of hit this inflection point and the cash is coming, what’s the kind of the cadence that the Board has given? Should we look for a payout ratio similar to kind of legacy Frontline of nearly 100% payout in earnings?

Would you expect given the leverage that you just took for the Trafigura acquisition and the loans still outstanding to Hemen, it may be closer to 50%, 60%. I know it’s a Board decision, but now that the cash flows coming, how do you think that you should message that kind of payout ratio to investors?

Robert Hvide Macleod

Oh, sorry, I can’t give you the – it’ll be up to the Board to give the exact on this. But if you look at the historic, as I pointed out, it’s very briefly in the beginning here that the history of Frontline shows $6 billion being paid out or $6 billion of dividend value being paid out. That’s going to – we are going to stop building on that number now. We are in a great position. I think it’s many years since Frontline has been in such a good position. So all I can say is, I think the Board will be positive to paying out and we will be ready to return the money to shareholders.

Jonathan Chappell

Okay. I appreciate it. Thank you, Robert.

Operator

Thank you. Your next question is coming from the line of Greg Lewis from BTIG. Please go ahead.

Gregory Lewis

Yes. Thank you, and good afternoon. If we could dive a little bit into the balance sheet as we kind of come through regular debt amortization as we think about 2020 and we think about the company position its balance sheet. It sounds like you’re very comfortable with your current leverage.

Should we be thinking about -- just as we think about going through and paying out our scheduled debt amortization or should – or is there the potential in a stronger market to maybe accelerate some of those – some of the outstanding debt and kind of pay down debt and – with a goal of maybe lowering those all-in cash break-evens? Any kind of color around that?

Inger Klemp

I don’t – I think in a way that Frontline is quite, let’s say comfortable with the leverage ratio that we have today, and – which is – our target is 65% of market value on our vessels as an average. And I think, assuming that there is no specific reason for it, let’s say, prepaying or accelerating that repayment of the debt, I don’t think that will be something we will put priority on.

Gregory Lewis

Okay, perfect. And then my follow-up question was, Robert, you mentioned in the prepared remarks, you expect the Suezmax cash break-evens, they kind of head lower here. Any – could you sort of talk a little bit about that in terms of – I mean, is there some sort of – do you have a target there, or do you just mean, "Hey, the Trafi vessels are coming in, and with that our cash break-even is going down and we’re comfortable with that.” Just trying to get any more color around that?

Robert Hvide Macleod

So, Greg, that’s related to the finance that Inger has just got committed. So we’re pressing the – using the break-even that’s the full line of the ships had and our ships had. And then now we’re financing ourselves and we’re getting that done at considerably better terms than what these ships are, how they’re present.

Gregory Lewis

Okay. So maybe we – maybe those – it was those vessels, maybe we shouldn’t expect the Suezmax overall cash break-even than maybe go much lower from where it is currently. Does that kind of the right way to think about it?

Robert Hvide Macleod

That’s what’s going to drop. So 10 of the Suezmaxes will very soon hopefully have a much better finance than the cash break-even willful. I’ll give you the exact figure, but we’re heading back to where we were a few quarters ago.

Gregory Lewis

Okay.

Inger Klemp

So the 10 Suezmaxes they have today an implicit rate of 365 [ph] above LIBOR, and we are then refinancing this with our new ICBC financing at 2.30 off of 230 basis points, which is a difference of 145 basis points in-between. And in addition, we have a longer profile than what Trafigura has, which we are now paying in a way on their behalf. So the difference between these two elements, I would say, will come to around $2,500 per day, maybe a bit more on those 10 vessels, but that will be averaged out to the older vessels spent.

Gregory Lewis

Okay, great. And then just one more for me on the Trafigura deal. I guess, it looks like it’s drifting further a little bit back to the – any – well, any sort of thoughts around was that just given the quickness in which the deal was done and signed up in August that it just things just had to get aligned to close this transaction, or just kind of curious, maybe why it didn’t close as quickly as we might have thought?

Robert Hvide Macleod

This is purely joint on the financing, Greg. So it – just obtaining it at the terms we wanted took longer and there’s a lot of paper work and so forth to compete as well. So this –but we’re confident on that closing and we’ll be back with timing on it soon.

Gregory Lewis

Okay, but Trafigura still has received those shares as of August, despite the transaction not closing, that’s correct?

Robert Hvide Macleod

Yes. yes. So we got full access earnings and by the fact that we’ve been only have the same exposure if you’ve been owning the ship. So we’ve got the instant access to the earnings on the vessels.

Gregory Lewis

Okay, perfect. Hey, thank you very much for the time.

Operator

Thank you. Your next question is coming from the line of Randy Giveans from Jefferies. Please go ahead.

Randy Giveans

How are you all? How is it going?

Robert Hvide Macleod

Oh, good, thanks.

Randy Giveans

Excellent. All right. So looking at October, you sold 4.3 million shares, raising $147 million. Over the past few months, you raised about $100 million in aggregate. So what would the use of these proceeds be going forward or kind of why raise $100 million in the last few months?

Inger Klemp

Yes. Other than the use of these proceeds have – we have already used them and we are there – have a portion left, which we are going to use in a way. So let’s say, as of the end of September, we have received approximately $51 million or a bit more than $50 million of the proceeds. And that was used in connection with the CapEx, capital expenditures that we had in that period related to newbuilding installments and related to the scrubber investments.

And then now in the fourth quarter or probably in the first quarter depending upon the closing of the Trafigura transaction, we will all spend the rest of that – those proceeds in a way related to covering up the rest of the equity portion, which is a small -- very small portion.

And then also the increase, the minimum cash requirements that we will have in relation to login agreement with respect to this financing on the Trafigura vessels, and then also in relation to further scrub investments and newbuilding CapEx payments, as we have now in the fourth quarter. So that is a sum up of what we used these proceeds for.

Randy Giveans

Okay. And then you mentioned how much you like kind of scrubber fitted Suezmaxes, but you did not exercise the options to acquire four more Suezmaxes from Trafigura. So why did you let those options expire?

Robert Hvide Macleod

That was a call that was made a while ago that the market – the spot market was still lagging, but we were also on the deal here where our share price had moved considerably from the, what we will be issuing shares at. So at the time it didn’t seem to us to be the right thing to do. In the meantime, the values have gone up a little bit, but overall, there is not many buyers out there. So, I don’t think we missed a big opportunity by not taking those options and we don’t regret not doing it.

Randy Giveans

Okay. And then, I guess, lastly from me, updated cadence of your either off-hire days or CapEx or number of scrubber installations by the end of the year, then by the end of the first quarter?

Robert Hvide Macleod

Got it. I’ll take that. I had the scrubber part. I’ll give you the scrubber straight away, which is – but one out of three ships that we have on the water now and that’s going to increase to about half the fleet within next three, four, maybe five months.

Randy Giveans

Okay. So by end of the first quarter, maybe April half the fleet, but no more plans for additional scrubbers thereafter, or is this kind of an ongoing strategy?

Robert Hvide Macleod

So we – in terms of – we made the call now on scrubbers up to April, May of next year. All the calls we’ve made have been on ships that were due to dry dock. So the next ones that will be coming up will be a bit trickier in terms of decision-making, because they will be outside of docking. So the whole cost will be scrubber only. I think, we’ll be in a rate environment, which is a lot stronger. So the off-hire cost will increase.

Randy Giveans

Yes.

Robert Hvide Macleod

But what we’ve done is that, we’ve – obviously, we hold the position in FMSI, gives us great access and that company is not going to be even better when the Clean Marine merger is completed. So our access to all the equipment is obviously excellent. And when it comes to planning, we’ve spoken to two specific yards. So we have things lined up. So that we can go along side and do the installation and – on a number of ships at a pretty 95% fixed costs.

So now what we watching as the performance of the scrubbers, we’re very happy so far. We are watching the fuel spread. The fuel spread is developing as per our expectations and we think it will widen into Q1 and then we will have to start making some calls. They will not be easy calls, given the overall cost of doing this. But we are positioned to do it and we can make calls or we need to make calls three or four months prior, actually doing the job.

So we’ve got things at least lined up. So we got the optionality and we are ready to make the decision when we need to, which with the current timeline, we’re looking probably second-half of Q1 there will be some cost to make.

Randy Giveans

Perfect. That’s great color. Thanks so much.

Operator

Thank you. Your next question is coming from the line of Michael Webber from Webber Research. Please go ahead.

Michael Webber

Hi, good morning, guys. How are you? Most of my questions have already been answered. But I wanted to zero in on kind of the sustainability, the uptick in rates and profitability here. Obviously, ramping a payout period – the payout early, now a nice aggressive step. And I think that most of the market would agree that there would be a lot of cash gets thrown out of business in the next 12 to 18 months. But obviously, the sustainability of rates above kind of mid-cycle levels is the biggest question, I guess, for most investors.

So, Robert, you mentioned something at the end of your remarks around kind of a slow build in the order book or kind of a lack of orders, even on the back of a rate spike like we saw earlier this month. We’ve heard on other calls that there is kind of a heightened fear of obsolescence risk, especially around tech and propulsion.

This kind of permeating the mindset of some private owners and maybe they’re reluctant to be the last guy in on old technology and that’s one of the reasons why we haven’t seen the order book respond in the way it typically has. When you’ve seen kind of just kind of ramp and profitability. I’m just curious, are you seeing that?

And then just to kind of your general thoughts around how you will – what kind of supply response you think you’ll see to what should be a pretty firm rate environment in 2020, as it pertains to the sustainability of these kind of rates?

Robert Hvide Macleod

I think, you touched on a lot of the right point. So I’m not going to repeat, they all have been mentioned on several other calls. And what I’ll do instead, Michael, I’ll focus on where we as Frontline see things and then and also what our strategy will be going forward, because we love…

Michael Webber

That would be great.

Robert Hvide Macleod

We just love the fact that the order book is not increasing like it is. Normally, when rates firm like they are and you have the outlook that you have at the moment, which is a strong as we’ve seen for a long, long time, then the order book would normally such. We’re not seeing that in for every week that remains the case.

We are building, I believe, the site next cycle length. So what we are very concerned, obviously, we’ve got visibility from here until the next new ships can deliver in terms of old new orders. So you will have that visibility of somewhere between 14 and 18 months, say, let’s call it a year-and-a-half just have a round figure.

So for next year-and-a-half then I don’t think on the supply side, I don’t think we’ve got much to worry about. The old ships will not be able to compete against new ones. There will not be much recycling, but we’ll have a lot of ships go into – if it’s full storage, maybe we get contango storage, who knows. But the older ships and, as you saw on the chart, the old ships are double the amount of ships on order.

So when looking at how to protect front on this position then one of the obvious ways to do into secure income is to do some time charters and we’ve held back on that. We’ve been very firm in our view and fortunately, we get it right, saying that the second-half of 2019 will be a lot better than the first-half and we’ve had a clear strategy on increasing spot exposure.

As we come into 2020 and strength, I think, we’ll see the time charter market becoming more active and then we will look at doing some coverage, of course, that is the right thing to do at the – in strong markets. We did it – we’ve done it before in 2017. We had a year, we would have lost $60 million, but we lost $10 million, because the time charter saved us from $50 million of them.

So we will look at that, but we will look at the longer deals, because we don’t think there’s any point in the period you have visibility being 12 or 18 months, then looking at that we have with our spot exposure.

So a charter for us, ideally three years, because then we start – we start taking coverage of some of the period, it’s not visible to us. So that will be the aim. Maybe we will look at two years as well. But I’m absolutely convinced that we will see the time charter market, which has been very disappointed likely. It has been more active in the last three months than the previous six or nine months. But I think that market still has a lot to go. I think the rates are also going to increase.

So we’re not jumping in anything now, but we are watching it very, very closely and we will take action and protect future earnings. And it’s a great tool, and I think that too will be much easy to use in 2020 than it was in 2019.

Michael Webber

Gotcha. That’s helpful. Just one more on asset value kind of the interplay between newbuild prices and use right now like the spread between pre-prompt and newbuild prices around $8 million, which is why it has been, I think in – since 2015, January 3 and you’ve got to go back to 2010 to find the last time you saw the spread between something on the water new and something on order with more than $10 million and that’s obviously kind of right around the time we saw the less amount of exogenous shock to the tanker markets around trying to turn on its heel. Do you think that kind of spreads something north of $10 million is in play as we move to 2020, or we could see secondhand prices move to $105 million, $110 million, $112 million with kind of a lag, with kind of a deeper lag on new build prices, because there is a reluctance to actually spend money on obsolescence propulsion deck?

Robert Hvide Macleod

Yes. The – what we’re seeing now in our spread, let’s take the first point first. The amount of balance out there is actually – this seems to be an all-time low, right? This is very few there. Suddenly, there will be some popping up, of course, but low – very low activity.

The spread, you’re absolutely right, it’s around $8 million, maybe $10 million. If I had a choice now between a prompt one or 18 months forward, I would definitely pay the $8 million or $10 million. So I think you’ve made that in the meantime being the reason number one. And the always reason number two is that, I’d rather not see the order book grow, right? But the spread is there and I think you will be on the right side of the trade by taking the prompt while you’re ordering.

Michael Webber

Gotcha. And that’s helpful, guys. I appreciate your time.

Robert Hvide Macleod

The simple number for Frontline on a year – if you look at the 18 months period and you need to, with our cash break-even, you’d look at having to earn somewhere in the plus/minus $50,000 depending on the vessel, but it’s – that’s around the ballpark figure, right?.

Michael Webber

Yes. Now $8 million definitely seems like a beautiful number in terms of that spread and certainly hurting it when it comes to looking at names on an NAV basis and how much juice you could see on second-half prices of that kind of dynamics. So now that’s helpful. I appreciate it, guys.

Operator

Thank you. Your next question is coming from the line of Erik Hovi from Clarksons Securities. Please go ahead.

Erik Hovi

Sorry, something got there. So, hi, on a dollar per day basis in the current spot market, we are seeing $104,000 a day as of today so – and also seeing loading mid-December. So do you think these earnings are artificially high as owners are now starting to move into VLCC or these earnings achievable?

Robert Hvide Macleod

Achievable.

Erik Hovi

Perfect. Thank you. That’s everything.

Operator

Thank you. Your next question is coming from the line of George Berman from Capital Large [ph]. Please go ahead.

Unidentified Analyst

Good afternoon. Thanks for taking my question. Couple of quick ones, real quick. The recently announced joint venture between Golden Ocean, Trafigura and yourself on the fuel facilities, what are the advantages of having this versus just go in the way we did before?

And secondly, can you comment on the merger of Feen company? I think you owner want a 50% or a 20% stake in it. What will that do for you? I saw it had a $2 million loss this quarter. What do you expect out of this joint venture or investment?

Robert Hvide Macleod

Okay, thanks very much. On – taking the Q1 first, I think the change we’re going to have here in fuel for ships worldwide is one of the biggest change is obviously for a long, long time. And it’s going to mean a lot of disruption and overall disruption positive for the tanker market. So this – the duration is going to be one of the drivers for the tanker markets.

We, as the John Fredriksen Group of Companies, we bunk on our own about 1 million tons a year. We are very close to several of the traders and Trafigura is obviously one of them. By doing this, our group with Trafigura, we’re going to increase our volumes significantly. We’re going to have access through Trafigura system, where they have some very, very strong areas around the world, which we’ve been using for years with good results.

So it was very natural then to look at doing this, because volume and access will be key. So what we want out of this is delivery at the right time. We want the right quality and obviously, we also want the right price. So I think this joint venture, this or this company, which we will have an operation very soon, it’s probably going to be 1st of January that’s the start updates. It puts us in a better position than most, I think. And we’ll keep our waiting time down and overall we’ll be in the pole position when it comes to fueling our fleet.

Unidentified Analyst

On the scrubber side, all I can really say on the process on Clean Marine and FMSI is that, my understanding is that things are going according to plan. It will successfully close. And once it closes, then Frontline will hold a position of 14.45%.

George Berman

Okay. And do you expect this company to do what for Frontline? You’re getting more advantageous retrofitting spots there or – and/or you’re going to expect a profit share or you might spin the company off to shareholders, like you did with Ship Finance?

Robert Hvide Macleod

I think we have the access. We have some decisions coming up on equipment and it’s obvious that we will be going here for our own equipment, the best price. We’re very happy with the quality. So that’s an easy and obvious choice. I think overall on the scrubber market, for all, everyone, it’s been relatively quiet in terms of new orders.

I think the spread in Q1 will widen. And I think this going to be a new wave of orders there and that’s also one reason I’m very pleased that we’re doing this with Clean Marine, because I think 2020 will be a very good year for the company. And then the strategy for our shareholders going forward, having some holding is – it’s not a natural thing for tanker company to do.

We are very pleased that we’ve done it, because I think IMO 2020 is such a big event, and it was extremely important to position ourselves. And I think we can clearly say that it’s been a success, so let’s see how things develop. It’s one option that would be to to give this out to all the shareholders as a dividend to our shareholders. We will see how things develop.

But for the time being, we will focus on doing our part in this merger happening and making it a successful company, where it’s definitely well-positioned.

Unidentified Analyst

Great. Thank you very much.

Operator

Thank you [Operator Instructions] We seems to have no further questions coming through. Please continue.

Robert Hvide Macleod

Okay. Operator, I think, we’ll then just sign off and thank everyone for calling in and also a special thanks to everyone at Frontline for all their hard work and efforts.