Earnings Call Transcript - FRO Q1 2020

Operator, Operator

Ladies and gentlemen, thank you for standing by and welcome to the Frontline 2020 Q1 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. I must advise you the conference is being recorded today, Wednesday, 20th of May, 2020. I would now like to hand the conference over to your speaker today, Robert Macleod. Thank you and please go ahead, sir.

Robert Macleod, CEO

Thank you very much. Good morning and good afternoon everyone. First of all, apologies for the delay in starting the call which was due to some technical difficulties. So, to kick off the call, I would like to express gratitude towards our shore staff and our crew members for their extraordinary efforts and dedication. They are clearly critical factors to our strong results. Frontline's performance in the first quarter of 2020 was the strongest since 2008 and we have made solid bookings for the second quarter. There has been quite a rollercoaster ride, but tanker earnings have been very strong amidst an unprecedented world situation. Let's kick-off moving to slide three please and quickly look at the highlights from Q1. Net income of $165.3 million or $0.84 per share, certainly a solid quarter. Adjusted for non-cash items, the net income was $179.3 million; the $7.1 million profit related to the higher profits at Suezmaxes are not included in these figures. Frontline declared a $0.70 dividend. The last dividend paid was $0.40 for Q4 of 2019. The VLCCs made around $75,000 in Q1, and we have booked 75% at $92,500 for Q2. Suezmaxes made $57,800 in Q1 and we have booked just over 60% of Q2, just shy of $72,000. LR2s made just over $30,000 in Q1 and are just over 50% done of Q2 at around $50,000. On the finance side, we closed the $544 million ICBC facility for the 10 Suezmaxes. Then before discussing the tanker markets, I would like to hand the call over to Inger, please take us through the financials.

Inger Klemp, CFO

Thanks Robert, and good morning and good afternoon ladies and gentlemen. Let's then turn to slide four and take a look at the income statement. We achieved total operating revenues net of voyage expenses of $289 million and EBITDA adjusted for certain non-cash items of $234 million in the first quarter. Frontline reported net income of $165.3 million, equivalent to $0.84 per share and a net income adjusted for certain non-cash items of $179.3 million, equivalent to $0.91 per share in the first quarter. The net income in the first quarter excludes the $7.1 million of net cash received and accrued profit share in relation to the five charter-in and charter-out agreements with Trafigura that have been treated as a reduction of acquisition cost of the vessels instead. The non-cash items this quarter was net $14 million in total and consisted of $5.4 million unrealized loss on marketable securities, a $15.8 million loss on derivatives, a $1.2 million gain related to our equity method investments, a $1.8 million on settlement of claim, and a $4.2 million gain on termination of the lease from Front Takata. The first quarter shows an increase compared to the fourth quarter of 2019 of $17 million against adjusted EBITDA and an increase of $72 million against adjusted net income. And the increase in net income in the first quarter of $72 million is mainly explained by the increase in result on time charter basis due to the higher reported TCE rates in the first quarter compared to the previous quarter. Then let us take a look at the balance sheet on slide five. Changes to the balance sheet as of the end of March 2020 compared to December 31st, 2019 mainly relate to an increase in cash and cash equivalents of $54 million, which is the net effect of CapEx payments, repayment of debt, drawdown of debt, cash flow from operations, and dividend payment. Then we had an increase in newbuilding of $21 million explained by installments paid in the quarter. We had an increase in vessels of $278 million related to the five vessels on TCL to Trafigura, which we recorded on the balance sheet when closing of the acquisition took place on March 16 this year. Also, we had an increase in short- and long-term debt of $484 million used to drawdown on the $544 million facility with ICBC offset by repayments this quarter. We had a decrease in short- and long-term obligations in the finance leases to $298 million, primarily due to the five Trafigura vessels moved to owned vessels at closing, March 16, 2020. And then we had an increase in equity of $94 million, mainly due to the net income for the quarter, offset by cash dividends. As of March 31st, 2020, Frontline has $392 million in cash and cash equivalents, including the undrawn amounts under our over unsecured loan facility and marketable securities and minimum cash requirements. Our remaining newbuilding CapEx requirements at the end of March amounted to $282 million and related to one Suezmax tanker, which we took delivery on May 19, and one VLCC expected to be delivered in June 2020. And then four LR2 tankers expected to be delivered in January, March, and October 2021, and January 2022, respectively. We estimate approximately $239 million in debt capacity for these newbuildings, where we drew down $42 million under its term loan facility with Credit Suisse entered into in November 2019 in May to finance the delivery of the Suezmax tanker. The short-term part or long-term debt includes approximately $310 million in debt maturities of the $500 million facility, which matures in December 2020 and approximately $40 million in debt maturity of the $60.6 million facility, which matures in March 2021. We are in the process of refinancing the $500 million facility and we have signed a term loan facility with Nordea in May this year, in an amount of $50 million to refinance the $40 million maturing in March 2021. In March 2020, as Robert mentioned, we signed the sale and leaseback agreement with ICBC of $544 million. In April 2020, we repaid $60 million of our $275 million senior unsecured facility agreement with an affiliate of Hemen, and up to $215 million remains available under the facility following this repayment. In May, finally, we signed a senior secured term loan facility with Crédit Agricole in an amount of up to $62.5 million to partially finance the VLCC that we have under construction at Hyundai. Let's then take a closer look at cash breakeven rates and OpEx on slide six. We estimate the average cash cost breakeven rate for 2020 of approximately $22,000 per day for VLCCs, $18,600 per day for Suezmax tankers, and $15,000 per day for the LR2 tankers, and the fleet average is estimated to be about $18,600 per day. These rates are the all-in daily rates that our vessels must earn to cover the budgeted operating costs and dry dock estimated interest expenses, time charter and bareboat hire installments on loans, and G&A expenses. In the graph, on the right-hand side of this slide, we have shown incremental cash flow after debt service per year and per share assuming $10,000 per day, $20,000, $30,000, $40,000 per day in achieved rates in excess of our cash breakeven rates, respectively. These numbers include the vessels on time charter out and we are looking at the period of 365 days from April the 1st, 2020. As an example, with a fleet average cash cost breakeven rate of $18,600 per day and assuming $30,000 on top, the average fleet TCE rate would be $48,600 per day and Frontline would, in this scenario, generate a cash flow per share after debt service of $3.65. With this, I leave the word to Robert again.

Robert Macleod, CEO

Perfect. Thank you very much, Inger. Let's move to slide seven please. The first quarter was certainly a volatile one. As the COVID-19 pandemic spread across the globe, traditional drivers like ton miles and refinery runs were disregarded as a new powerful dynamic emerged. As crude oil imports to China began to decrease, the market turned sharply upwards as expected production cuts did not materialize and instead, Saudi Arabia, Russia, and the UAE increased production. In the freight markets, we witnessed the busiest chartering period I've seen in my career, as charters were scrambling for tonnage. With a rapid decline in global oil consumption, due to lockdowns across the globe, oil production was soon well in excess of demand. Under normal circumstances, a drop in demand might lead to lower freight rates; this time it led to a surge for places to store on ships, which was one solution. These were not normal circumstances and the speed and severity of the drop had an opposite impact on tanker rates as a record increase in oil on water saw freight rates firm significantly. In the chart on the slide, we see how demand has retracted faster than production cuts, leading to inventories being built at an unprecedented rate, both on land and water. These moves in the global oil trade have happened very quickly. Trade developments going forward are linked to how fast demand recovers and to what degree and how quickly production turns. This is obviously very hard to predict. I'll get back to this in the final slide, but let's first look at the global fleet capacity. So, to slide eight please. The global fleet capacity growth is slowing. Global tanker fleet growth is a key driver of long-term earnings and the order book is at a level not seen since 1997. Various factors support our expectation that order books will remain low over the next 24 months. In addition to the historically low order book, it is worth noting that 24% of the VLCC fleets is above 15 years this year. Customer preferences for modern tonnage are only increasing and that puts Frontline's fleet in a great position. We also expect vessel off-hire to continue to have a material impact on fleet capacities this year as a large number of vessels are due for periodic dry dock, and quite a few of the vessels too have recently been granted short extensions, but this is only a temporary postponement; the service must be carried out. All eyes are currently on inventory draws. The vessel supply could be a big surprise in the second half of 2020 and into 2021. We watch it very closely. Moving on to the present market and a bit of an outlook. Oil demand has been described as destroyed in recent months. We think suppressed describes the situation more accurately as we believe the decrease in oil demand is temporary. The recent production cuts have been both immediate and real, absolutely no doubt, and have affected the freight levels negatively. On the oil demand, there have been surprises in recent weeks. Chinese gasoline demand is above 2019 figures and recent figures from India also show a sharp recovery in gasoline sales. Not surprisingly, Asia leads the way on demand recovery, whilst the U.S. is likely to recover faster than Europe. Over to floating storage, we currently estimate around 200 million barrels floating and we might be close to the peak. We expect to see an unwind of floating storage during the balance of 2020. Aframaxes in Europe are likely to be the first ones to unload; some have already done so, while VLCCs are likely to be locked up on a longer structure. This is pure speculation; of course, with given recent news on the demand side, we could see production cuts reverse as early as during the second half of 2020. One fact to be stated, volatility will continue going forward, very much like the year so far. So, in conclusion, Frontline enjoys the youngest fleet and the lowest breakeven level in the history of the company. And 2020 is shaping up to be a great year for Frontline and its shareholders. With that, operator, I would like to turn to questions please.

Operator, Operator

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

Jonathan Chappell, Analyst

Thank you, good morning, Rob, or good afternoon, Inger. I have three questions for you today, and I hope they will all be relatively quick. Rob, you did an excellent job explaining the accounting for the quarter-to-date and how it plays out. Regarding the 75% that you've completed at over $90,000 a day, could you help us understand what we should expect for the remaining 25%? The markets have declined, but there are always stable days. Looking at the first quarter, if we take what you've reported so far and compare it to the $74,800, it seems that the last 17% of the days were actually negative. I'm not looking for guidance or specific numbers, but can you clarify if it is closer to what's important today? Is it closer to zero or somewhere in between, just so we can better understand how the second quarter will develop?

Inger Klemp, CFO

Obviously, it is difficult to predict, but there will be some ballast days at the end of the quarter, which will take it down. It will also be taken down a bit, but the current rates are weaker than what so far for the 25% has contracted. So, to give you a precise number or anything that's difficult or very, very, it’s not possible in a way, so I'm sorry about that.

Jonathan Chappell, Analyst

That's okay. Maybe another way to ask is whether the ballast days you expect for the rest of the second quarter will be similar to a typical end of the quarter. Are there more or fewer? Just trying to understand how the second quarter will shape up?

Inger Klemp, CFO

It does vary. The number of ballast days will vary between the quarters. But for this quarter, it was quite high actually. It was 319 ballast days for the VLCCs, as an example, and that was up from the previous quarter.

Jonathan Chappell, Analyst

Okay, that's helpful. Rob, on the fleet side, obviously something that we're watching very closely and very hopeful to set the next real sustainable recovery, not just the blips. I heard earlier this week that the Korean yards are becoming desperate. Now, we are hopeful that they would be filled up with LNG carriers from Qatar. But we're hearing that's becoming a bit more desperate with the VLCC front. Can you confirm or deny whether you're hearing from the yards? And then also, Frontline and your largest shareholder specifically have been kind of early on ordering at attractive prices. So, what's your appetite to order ships today if the Koreans are really becoming aggressive on pricing?

Robert Macleod, CEO

Now, at the yards, however time has been, I would say desperate, but the price has come down and we've seen there's virtually been no ordering lately. When it comes to Frontline and our interest, we have a constructive view of the tanker markets in 2020 and 2021. So, all our interest is further out into 2022 when there are resources available and other opportunities. Then I think that I would say take the main focus and ordering newbuildings here is not on our radar.

Jonathan Chappell, Analyst

Okay. Thanks. And then just the last one. I don’t think anybody is worried about Frontline's ability to get credit facilities, given your relationship with European banks. The $310 million is a pretty big chunk at a time where the world is pretty uncertain right now and things are under pressure. What should we think about as far as the timing of that refinancing ahead of December 2020? How do you put the discussions? And that the $100 million ATM that you put in the press release, obviously, you said you were new to today's prices. But is that something you're thinking about putting in place just in case the financing market becomes very difficult in this uncertain time?

Robert Macleod, CEO

I think it's very easy to support the company, and we have complete confidence in Mr. Fredriksen and our access to finance. The ATM is not connected to this in any way. The ATM serves as a housekeeping tool that we have used in the past, and as we've clearly stated, we would not consider using it at the current share price.

Inger Klemp, CFO

No, but to answer to your question also, I mean as I referred to, we did recent financing in the market, we did the refinancing of this Nordea facility. So, we don't really have any concerns about not being able to refinance the $500 million facility either. So, it's only a matter of trying to say maximize or improve the terms that are best if it's possible in a way. But the financing is there, so no problem.

Jonathan Chappell, Analyst

Great. Thank you, Inger. Thanks, Rob.

Operator, Operator

Thank you. And our next question comes from the line of Randy Randall Giveans of Jefferies. Please ask your question.

Randall Giveans, Analyst

Howdy, Rob and Inger. How are you?

Inger Klemp, CFO

We're fine. What about you?

Randall Giveans, Analyst

Doing well, doing well. Yes, two quick questions here. So, for the fourth quarter, you announced a dividend of $0.40 based on a $0.60 EPS, so about 66% of that. First quarter announced a dividend of $0.70 on EPS of let's call it $0.91 around 75% there. Do you have a defined kind of dividend policy going forward? Just trying to think about 2Q and beyond?

Inger Klemp, CFO

Our dividend policy remains unchanged. We have a statement on our website indicating our intention to pay out a significant portion of excess cash flow. The Board also considers risk management and factors in our current CapEx program and any necessary adjustments, including non-cash items. That's the current approach we are taking.

Randall Giveans, Analyst

For 2Q 2020, should we expect similar at least 50%, 60% of kind of EPS there?

Inger Klemp, CFO

Sorry, I didn't really get your question there.

Randall Giveans, Analyst

For the second quarter, is it reasonable to anticipate EPS of 50% or more, possibly 60%?

Robert Macleod, CEO

I think for the second quarter, Randy, we will see what the Board comes up with and decides in August. Looking at the history of the company, we are now well above $6 billion paid out since the U.S. listing and I think the company and the Board has no intention to change this history and track record. We want to keep building on it and looking at the company and looking at where we are in our cash breakevens Looking at how we've done on the time charters recently, and also with our constructive view of the markets, and with the fleet of an average age, just over four years. I think we've got every possibility here to perform well going forward. And looking at track record, I think it is the best way to answer your question.

Randall Giveans, Analyst

Okay. And then looking at your Aframax, LR2s, for most of the first quarter, Aframax crude tanker rates outperformed LR2s. But in April, the crude rates kind of fell off, but LR2s hit all-time highs. So, currently, kind of how many of your LR2 product tankers are operating in the crude or dirty trade? And if you can kind of talk to that market a little bit on what has caused that rate spike and then subsequent kind of rate decline back to maybe $40,000 a day?

Robert Macleod, CEO

That's a very good and relevant question. And what you're stating was actually also the case in the second half of 2019. The Aframaxes were outperforming the LR2s and there were definitely times when I was kicking myself for not having gone dirty on more LR2s. However, between the two segments, obviously we have 18 LR2s in total. We are trading 11 clean and seven dirty, which fortunately now in recent months, the LR2s have sort of clawed back in terms of the earnings, nor we looked at the exact numbers, but they are probably going to be not far off being on par with what's happened recently. The LR2 market, I find it very difficult to even comment on how it has been going over the last couple of months. I've never seen anything like it. I would describe the LR2 spike to be more extreme in relative terms than what the VLCC spike was. There's a lot of delays in our segments. In terms of the number of LR2s, the fleet size is only 23%, 24% of the VLCC in terms of numbers. So, as soon as you have a lot of ships delayed or held up on storage or full storage, then you get these mega spikes. I think the very, very high rates as we had on the VLCCs as well, only happen on a handful of fixtures. But over the last month or two, it's been extraordinary. So, it's now stabilizing, but still, it is at a very healthy level. But it’s very, very difficult to predict how this is going to carry on. But it looks like although there are signs of, as I was saying earlier that the demand is coming back, especially in Asia then Europe and the U.S. will still be struggling. So, you will have sort of to be forced to store for quite some time.

Randall Giveans, Analyst

Sure. And what's your split there for your Aframaxes, LR2s in terms of crude versus clean?

Robert Macleod, CEO

11 LR2, seven Afra.

Randall Giveans, Analyst

11 LR2, seven Afra. Excellent. And then last quick question for the Hemen facility, it looks like you paid down half of that from $120 million down to maybe $60 million, is the plan to repay the remainder during the second quarter?

Robert Macleod, CEO

Yes, we will be going from $120 million to $60 million. Further down payments have not been decided, but we will update you on that when it comes up.

Operator, Operator

Thank you, sir. Does that answer your question?

Randall Giveans, Analyst

Yes, that's it for me. Thank you so much.

Operator, Operator

Thank you. And your next question comes from the line of Greg Lewis of BTIG. Please ask your question.

Gregory Lewis, Analyst

Yes, thank you and good morning, good afternoon, everybody. Rob, just mentioned some of the vessels at shipyards that are under construction. Clearly, some of those are owned by stronger hands, some of those are owned by weaker hands. It's been an interesting picture adjective to describe the first half of 2020. What is kind of the appetite and from potential sellers of tonnage? How has that changed or has that changed over the last few weeks as it looks like now we've kind of settled into just a firm solid market with these around $50,000 a day? We're not seeing those headline $200,000 rates, but still an attractive market. Has that kind of loosened up or caused any more interest or pickup in maybe not actual physical deals closing, but activity or inquiries interest in the S&P market?

Robert Macleod, CEO

I think you touched on something very interesting, Greg. So, I've not seen anything like this. When it comes to S&P, what's happened so far this year has actually amazed me. And the simple example is that normally when the freight market goes to levels where you can write down purchase with more than $10 million, even $15 million or $20 million in a short span of time, there were periods when one-year charters would write down a vessel by more than $20 million. Even at that point, we didn't see many transactions. There were ships offered for sale. We did have a look at a few, but it's been a very, very strange market with very few transactions happening. And with the rate correction, indeed, which also corrects the write down potential in the front, then we're now at very healthy levels still as you described. But we are seeing very little activity and I'm also of the opinion that even if the yard price will fall, then, the number of deals will be low there as well, because we mustn't forget that access to finance, as we discussed in an earlier question, and I think Frontline's access is superior and is never a problem or challenge for us. But as an industry, this is more difficult, and this affects it. So, and also as you are saying, quite a few strong hands are sitting and probably happy to sit if they share the same constructive view as we do.

Gregory Lewis, Analyst

Okay, great. Just one more question from me. You mentioned in the prepared remarks or maybe in one of Jonathan's questions that vessels are operating a bit slower, which is part of the reason for delaying some of the scrubber installations. I'm curious about how we should view this. Fuel prices are low, so they’re not the reason for slow steaming. Rates are stable, so any insight you can provide on why we are still seeing slow steaming and what might be influencing that would be appreciated.

Robert Macleod, CEO

I believe factors like slow steaming, congestion, and general delays all contribute to the situation. Some of it is influenced by contango, while others stem from a lack of onshore space, leading to an increase in the amount of oil on the water, which is up nearly 20% this year in terms of the global tanker fleet. Analyzing each of these factors individually can be challenging in understanding their overall impact on the market, but the total amount of oil on water, which reflects these factors, is quite informative. Regarding the scrubber, we have simply chosen to keep it at our factory and only prepare the ship underwater during dry dock. This will involve a modest investment of under $100,000. If the fuel price spread returns, we can then install the scrubber and start using it. This spread is closely linked to the crude flat price, and as that goes up, the spread should also increase. Only time will tell, but we believed it was a prudent move based on the current rates, as it also reduces dry dock time by two weeks. We feel confident in this decision, which is reversible, and we are still achieving solid earnings.

Gregory Lewis, Analyst

Okay, great. Just to follow up quickly on that, do we have any understanding of how Frontline tracks the average speed of its fleet? I'm not sure if it's considered on a monthly, weekly, or daily basis, but is there any indication of how this average speed has been trending over time?

Robert Macleod, CEO

Since we began implementing eco speed, the overall speed of our fleet has decreased. This reduction in speed flexibility is due to the more efficient engines that have less power. However, the contracted speed for our voyages, known as latent speed, has remained fairly stable. The primary change we are observing is in ballast speed. Generally, during a market downturn, we reduce speed to conserve fuel, and in a high market, we increase speed to reach load ports as quickly as possible. Over the course of a year, these adjustments only lead to a minor difference, typically just a knot or two. When considering the number of days spent in ballast or in port, the overall impact is significant but not overly large.

Operator, Operator

Thank you. Your next question comes from the line of Omar Nokta of Clarksons. Please ask your question.

Omar Nokta, Analyst

Thank you. Hi, Robert and Inger. Robert, toward the end of your opening remarks, you mentioned floating storage and how some of the Aframaxes have come off that storage, but VLCCs will likely stay a bit longer. From a market color perspective, presumably some of the VLCC charters you entered into had options for floating storage. Can you give a sense of the shift that you have on charter whether they are in floating storage at the moment or if the charters have exercised options to do so?

Robert Macleod, CEO

It's a good question. Thanks, Omar. We've observed about 35 million barrels at the peak in Europe for Aframaxes. Some of that has been unwound, and on the VLCCs, we've done charters, typically five or six between six months and twelve months, and these are time charters. The charters have the freedom to trade the ships as they prefer and are not purely for storage. Currently, we have one Suez that has gone to storage and another that is about to start storing, but that's the extent of it. We also have several ships that are in a sort of forced storage situation due to a lack of origin and other factors. We'll see how this develops, but we are hearing that some Aframaxes are becoming available, while on the VLCCs, there are likely some cargoes that will continue to be stored through Q2 and Q3. Additionally, traders typically avoid flat price risk. Recently, some cargos have been sold at significant discounts, and the container market has been robust, leading me to believe that some traders have hedged their positions for the next two to three months. They may also be anticipating a rebound in demand and a recovery in Brent prices, prompting some to hold out for this call to strengthen as recent crude purchase timings were historic.

Omar Nokta, Analyst

Well, that's interesting. So it's a good point. So, you're talking about the discounts from the Saudi's and whatnot. And so it's not just simply looking at the front end of the curve and the back end of or the six months, there is also the $5 or $10 discount upfront as well.

Robert Macleod, CEO

Yes, exactly. This illustrates how tight the freight market was. There were distressed cargoes, and suddenly someone would find an opportunity to ship within the next five days to West Africa, which would come with discounts of about $5 to $10 a barrel. Considering the recent increase in flat prices, it's clear that there are entities holding oil that is significantly profitable, and some may be willing to take the risk to pursue even greater profits.

Omar Nokta, Analyst

Yes. Okay. And then just how does it work for instance, if for some reason the contango really does switch and they want to go shorter? If they want to unwind the floating storage, is there any impact at all on the charter that you have with them?

Robert Macleod, CEO

No, they would still have an obligation to keep the vessel on hire and pay us until the earliest redelivery dates. So, what you'd see in that sort of circumstance is that they will then try to trade the ship in the spot market. But many of the guys that have put ships on storage are very familiar with the spot market having ships themselves. So, they would then go from being on storage to being normal spot players.

Omar Nokta, Analyst

Okay.

Robert Macleod, CEO

As I mentioned earlier in the presentation, we initially expected that the peak storage of oil on ships would be significantly higher and would occur a month later. However, current indications suggest we may be nearing that peak at around 200 million barrels floating. The downside of this situation is that we are not experiencing the extended freight spike we anticipated. We expect crude prices to remain low and contango to stay strong for a longer period than previously thought. On the positive side, this implies that the crude inventory draw, which has been widely discussed as a major factor that could disrupt the market, will be less significant. Thus, this reduction indicates that our return to a more normal freight market may happen sooner.

Omar Nokta, Analyst

Thank you for the insight, Robert. I have another question regarding the LR2s. Currently, 11 are trading clean while seven are dirty. How do you see the mix evolving in the future? Last year, there was significant pressure to transition to dirty, and now there's discussion about potentially returning dirty LR2s to clean. How do you perceive the situation with those ships over the next six months?

Robert Macleod, CEO

It's early, and it depends on how the market develops. Generally, for the dirty ships, when we have opportunities to clean them up cheaply, like through condensate cargos, we're likely to take those opportunities. I don't expect much change; we've maintained the 11/7 split for quite some time. If I had to guess, I would say it's more probable that we will go clean on one and dirty on another, but that will depend on market developments. This year has been quite a roller coaster in the market, with some remarkable mechanics at play. The 35 million barrels floating in the North Sea or the continent on Aframax vessels will eventually be unwound. We need to pay close attention and be ready to make quick decisions regarding our chartering strategy.

Omar Nokta, Analyst

Got it. All right. Very good. Thanks Robert for that. Appreciate it.

Robert Macleod, CEO

Thanks.

Operator, Operator

Thank you. And your next question comes from the line of George Burmann of CL Securities. Please ask your question.

George Burmann, Analyst

Good afternoon. Thanks for taking my call and congratulations on a great quarter.

Inger Klemp, CFO

Thanks.

George Burmann, Analyst

I have a couple of quick questions about your joint ventures. You have one with Clean Marine, and in January, you partnered with Golden Ocean and Trafigura regarding fuel supplies. It seems that each of these contributed about $600,000 to your share of the profits. What are your plans for these two investments? Are any of them considering going public, and what kind of profits are you generating from these?

Robert Macleod, CEO

Thank you for the question. Regarding Clean Marine, we hold approximately one-sixth of the company, which manufactures scrubbers, but sales are currently inactive. Therefore, we are utilizing our scrubbers at the factory rather than on the ships, depending on the fuel spread. The company is exploring alternatives, and we have a new factory capable of producing a variety of products. This represents a minor investment for Frontline, and we remain passive shareholders, so there are no immediate plans regarding it. The joint venture with Trafigura, which focuses on fuel, has begun very successfully by securing fuel of the right price, quality, and timing for our ships and others in the industry. The company has experienced significant growth, and I believe that partnering with Trafigura and Golden Ocean was one of our best decisions regarding IMO 2020. We are optimistic about its future potential, and as we continue to deliver results, we can make further plans for growth. However, there are currently no developments expected for either of these investments.

George Burmann, Analyst

Okay. Referring to your current valuation in the stock market, it seems that many crude transportation, shipping, and tanker companies are experiencing extremely low valuations instead of pursuing new builds or existing ships in the market. Do you see any opportunities for a combination with other companies that might be even less attractively valued than yours?

Robert Macleod, CEO

We certainly look for opportunities, I think if there is any company that can consolidate, it's Frontline. So, we'll see what opportunities come up, but for us, the most important thing is to keep working hard with our modern fleet. We have the big size and you can see from the Q1 results that we returned pretty hefty returns to our shareholders here and I think that's going to maintain our focus and Q2 we made solid bookings. So, I think we're in a very good standing. But generally, I agree with you. If you look at the tanker companies, in general, it's not being valued as linked to the earnings, it seems.

George Burmann, Analyst

Yes, it seems like we need to figure out a way to transport the oil via the cloud.

Robert Macleod, CEO

Exactly, right.

George Burmann, Analyst

Okay. Thanks very much and I look forward to your future.

Robert Macleod, CEO

Thank you.

Operator, Operator

Thank you. Ladies and gentlemen, that does conclude the conference for today. Thank you for participating. You may now disconnect.