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Executives

Jens Martin Jensen – Chief Executive Officer

Inger Klemp – Chief Financial Officer

Analysts

Jon Chappell – J.P. Morgan

Josh Ketzerfarm – Deutsche Bank

Sal Vitale – Sterne, Agee

Gregory Lewis – Credit Suisse

Michael Weber – Wells Fargo

Fotis Giannakoulis – Morgan Stanley

Alaric Nightingale – Bloomberg

Frontline Ltd. (FRO) Q3 2010 Earnings Call November 24, 1969 9:00 AM ET

Operator

Good day, ladies and gentlemen. And welcome to the Third Quarter Results Presentation. For your information, today's conference is being recorded.

At this time, I would like to turn the conference over to your host today, Mr. Jens Martin Jensen, CEO. Please go ahead, sir.

Jens Martin Jensen

Thank you. Good morning, good afternoon and welcome to our Q3 presentation. The third quarter was a difficult and strange quarter. But I’m happy that we managed to come out with a small profit, which not many other listed tanker owners did.

We will follow our usual program for this presentation with Inger going through -- following the highlights of the third quarter and main transactions, financial review of the quarter and then update of our newbuilding program. Thereafter, I will talk about what happened market wise in Q3 and thereafter, say a few words on how we see things going forward.

Inger, please?

Inger Klemp

Thanks, Jens, and good morning and good afternoon to you, ladies and gentlemen. I will guide you through the highlights on the financial review in the third quarter of 2010, together with a run-through of the newbuilding program and the fleet.

Moving then to slide four. The fourth and the final VLCC newbuilding from SWS of Front Signe and the fourth and the final of the original series of the Suezmax newbuilding from Rongsheng, the Front Njord were delivered in August 2010.

And in September 2010, Frontline agreed with Jinhaiwan Shipyard to re-structure its VLCC newbuilding program resulting that -- in that we now have a commitment to take delivery of five VLCC newbuildings with a total contract price of $525 million. The delivery date will also then differ by three months from the original contractual date and furthermore, payment terms of the previously ordered vessels were improved.

In September 2010, Frontline entered into an agreement to Time Charter Out two VLCCs. Golden Victory were extended to three years from October 2010 at a gross rate of $40,000 per day. And the Front Eminence for through the five years from November 2010 at a gross rate of $43,000 a day.

In November 2010, Frontline extended a Time Charter In agreement of the Front Chief to Front Commander and the Front Crown, all 1999 built vessels for one-year from January 2011 at $26,500 per day per vessel.

And then finally in November 2010, the company secured pre and post delivery financing in the amount of $147 million, representing 70% of contract price for the first two VLCC newbuildings to be built at Jinhaiwan and to be delivered in 2012.

Moving then to slide five. I will then give you a quick run through of the financial highlights in the third quarter. Frontline reports net income of $12.3 million, equivalent to earnings per share of $0.16 in the third quarter of 2010. As Jens said in the beginning of the conference, not very good results may be but at least the positive results, compared to our competitors, which I think more or less all of them had a loss.

This is a decrease compared to the second quarter of 2010 of $69 million. The net income includes a gain of $6.8 million relating to the amortization of deferred gain on three leases. The net income excluding this gain was $5.4 million, equivalent to earnings per share of $0.07, and on this basis, we announced the dividend of $0.25 per share for the third quarter.

Then moving to slide six. The net income excluding the gain is about $66 million we given of course in the second quarter of 2010. And the decrease can mainly be explained by, first, a decrease in income on time charter basis with $32 million in the third quarter, compared to the second quarter as we no longer charted in the Nordic American Tanker Shipping vessels from July, 1, 2010. And in addition to that, a decrease in the time charter equivalent rate per day in the third quarter, which gives us a total decrease in income on time charter basis by $100 million.

Then we have had a decrease in profit sharing payable to Ship Finance was $6 million. Further, ship operating expenses increased by $2.4 million, compared to the preceding quarter, primarily as a result of increase in running costs of $1.5 million, mainly related to delivery of newbuildings and a $900,000 increase in drydocking costs.

Frontline dry dock three vessels in the second quarter and two vessels in the third quarter, but a portion of cost related to Front Tina, which entered dry dock in the second quarter was expensed in the third quarter.

Charter hire expenses has decreased by $32 million in the third quarter, compared with the second quarter primarily due to the fact that we no longer then chartered in the Nordic American Tanker Shipping vessels from July 1, 2010. And as we mentioned earlier, this has a corresponding decrease in operating revenues. Then depreciation has increased about $1 million, due to delivery of the newbuildings.

Moving to slide seven. Frontline double hull VLCCs fleet, excluding the vessels on floating time charter earned in the spot market approximately $30,200 per day. Including the vessels on floating time charter, the VLCC fleet earned $30,000 doubles and $24,400 per day for singles with an average spot earnings of $29,900 per day. The average for the whole VLCC fleet was about $29,800 per day in the quarter.

The Suezmax fleet earned in the Gemini pool $17,500 per day in the quarter. As a consequence of that, some of our Suezmax vessels traded out by the pool at somewhat lower TCE rate. We earned on average in the spot market approximately $15,700 per day in the quarter. We've had no singles in the quarter and the average for the whole Suezmax fleet was about $18,200 per day in the quarter. The OBO earned $48,600 per day.

These TCE numbers show that Frontline this quarter actually slightly below or in line with our competitors and the ITCL vessels are not included in these guide.

Moving then to slide eight. As we can see from the slide, we had average OpEx for the fleet of approximately $9,900 per day in the third quarter 2010, compared to approximately $10,100 per day in the second quarter of 2010. We had dry dock two vessels in the third quarter 2010, which is one less than in the second quarter of 2010.

Off-hire days were 161 in the third quarter, compared to 131 days in the second quarter, due to more time consuming dockings in this quarter and some spill of effects from vessels and pending dry dock in the second quarter. We expect to dry dock three vessels in the fourth quarter of 2010.

Moving then to slide nine. Total balance sheet is approximately $120 million lower than in the second quarter of 2010. The main items explaining the changes are, cash has increased with $39 million, compared to the previous quarter as conversion of cash from operations have been higher than the use of cash investing and financing activities.

Other current assets have deceased with $117 million, mainly due to decrease in receivables related to the prepayments of $110 million, gross charter hire ship finance for the six months starting April 1, 2010, and also reduction in trade receivables and voyages in progress.

Book value newbuildings and are reduced with $93 million and book value vessels are increased by $129 million, following delivery of one Suezmax building in Front Njord and one VLCC newbuilding in Front Signe in the quarter.

Other current liabilities have decreased with $95 million, mainly explained by reduction in prepaid OpEx due from ship finance and trade payable. Short-term and long-term, part of long-term debt is increased with $123 million, as a consequence of drawdown of debt in relation to delivery on newbuildings and drawdown of debt on the Front Endurance, which was delivered in the end of the second quarter, but we haven't drawn down any debt at that time. This is partially offset by ordinary repayment of debt in the quarter.

Obligations and the capital leases have decreased with $97 million due to ordinary repayment and also the termination of the held lease on the British Purpose. But the sale is included in the balance sheet with the total of $406 million of debts and obligations on the capital lease. Debt related to three of the (inaudible) Suezmax vessels are not consolidated in the balance sheet with $48 million.

Then moving to slide 10. The cash cost breakeven rates in the fourth quarter 2010 are approximately $31,300 per day for the VLCCs, $24,900 per day for the Suezmax and $30,600 per day for the OBOs. These rates are the daily rates, our vessel must earn to cover budgeted operating cost, estimated interest expense, scheduled loan, principal repayments, bareboat hire and corporate overhead costs.

These breakeven rates do not take into account capital expenditures or loan ballooning repayments at maturity. Furthermore, vessel from short-term TC-ins and vessels on BB-outs are not included in the cash cost breakeven rates.

The cash cost break-even rate for the OBO you will see have increased in the fourth quarter. And this is mainly due to the drydocking of Front Driver in this quarter -- in the fourth quarter.

Moving then to slide 11 and 12. As per end September 2010, the total number of vessels in the Frontline newbuilding program was two Suexmax tankers and five VLCCs, which constituted construction cost of about $650 million. As for September 30, we also had two Suezmax newbuilding option, and these two options have subsequently expired.

As of September 30, installments of $162 million have been paid on the newbuilding and the remaining installments were paid for the newbuildings amounted $488 million, with expected payments of approximately $63.5 million in the fourth quarter 2010, $95.4 million in 2011, $185 million in 2012 and $144 million in 2013, respectively.

Moving to slide 13. The company has established long-term pre-and post delivery of newbuilding financing for the six vessels built up from Rongsheng Shipyard and SWS Shipyard. As of September 30, all of these vessels have been delivered and the subsidiary has been fully drawn with $367.4 million of debts outstanding.

In the second quarter 2009, we also established long-term pre-and post delivery newbuildings for the last two newbuildings being built at SWS. As of September 30, both these vessels have been delivered and the facility has been fully drawn with $145.2 million of debt outstanding.

In November 2010, the company secured pre-and post delivery financing in the amount of $147 million, representing 70% of the contract price for the first two VLCCs to be delivered from the Jinhaiwan Shipyard in 2012. And for the three remaining VLCCs and two Suezmax tanker newbuildings to be delivered between late 2012 and 2013. The company has not yet established pre-and post delivery financing. Based on the recently secured financing for the VLCCs however, we have seen 70% financing of the market value for these newbuildings.

Based on that, net remaining asset investment is approximately $29 million, which is fully funded through excess liquidity coming from the recent completion of the $225 million convertible bond offering.

Moving to slide 14. In this graph, we showed installments to be paid under the newbuilding contract related to the newbuilding contract in the Q2 2010 to 2013, with a total of $488 million in the large blue column. The dark blue column includes established financing, and reassumed obtainable financing for the newbuilding contract of 70% of the market value in the period 2010 to 2013, with a total of $459 million. And the blue dotted column includes funds used from the convertible bond offering to fully finance the newbuilding program with a total of $29 million. This shows that cash flow from operations does not have to support financing of the newbuilding program.

Moving then to slide 15 and 16. The number of vessels in the Frontline Fleet is 80 vessels, including vessels on commercial management and the ITCL vessels. And it's component by 46 double hull VLCCs, five single hull VLCCs, 21 double hull Suezmaxs and eight OBOs.

We do have contract coverage of 34% in 2010 and 25% in 2011. In additional to this fixed rate contract coverage, we also have an additional 11% contract coverage of profit and income in 2010 and 12% in 2011. The average net TC rate for total fleet is about 45,300 per day in 2010 and 46,400 per day in 2011. We aim to increase the fixed charter coverage for 2011 to 2013 from the present levels to 2010 level.

And with this, I'll leave the word to Jens again.

Jens Martin Jensen

Thank you, Inger. We are now on slide 17, market. We had hoped that a good summer market would have remained at least into August, but unfortunately by mid-June, the market started to deteriorate. I think the easiest escalation would be that the demand side remain pretty much stable, but the tonnage supply was the main negative contributing factor to the market.

Basically, all the VLCCs utilized for floating storage entered into this spot market and this 30 ship injection had quite a negative effect. China again came out with impressive crude oil in [quad] numbers, but trading pattern changed a bit in the third quarter with more volume coming from the Persian Gulf and the Caribbean or West Africa and just reducing tons, mileage. But it seems we are back to normal in Q4 when it comes to China's oil sourcing.

Our French friends did what is good to help the tanker market and it's basically Suezmax market unfortunately little bit of help in the end. We have seen an increased demand in the beginning of Q4 and the market has come up to more healthy levels, but still not at a satisfactory level.

We are now on slide 18, the VLCC fleet. The VLCC newbuilding deliveries continued slippage and the order book is now approximately 20% behind of the intended deliveries. We see this trend continuing into the New Year.

Single hull VLCCs are still trading and we have seen in the recent weeks when the market hits around 70 some charters are tended to go back to all habits and start to fix with single hull ships again. Percentage for the year will be a very modest fleet growth in the VLCC segment.

Suezmaxs in slide 19, that's about 30% slippage of newbuildings being delivered and we have seen the same trend throughout the year and we think this will continue into the next year. But the recent ordering in the segment is obviously concerned. Interesting, next year 2011 about 15% of the double hull Suezmax Fleet will be more than 15 years old.

We are now at slide 20. As Inger mentioned, we are happy that we manage to renegotiate our VLCC newbuildings down to market levels. We estimate and believe that good specification VLCC newbuilding prices in the region of 105 million a day and around 67 to 68 million a day for Suezmax.

The three-year time charter rate for VLCCs is around 36 to 37, 000 and 3 years for Suezmax, is 26 to 27 but there are not many charters out there, so this number may not be the most accurate.

Outlook, slide number 20. On the fleet development side, VLCC and Suezmax’s ordering a slowing down which is positive and other tonnage types are taking up yard space. Delivery slippage continues and as we have said before, next year is really when the expensive order book is kicking in and we expect continued cancellations and slippage of deliveries going forward.

We have seen that the oil company vetting criteria has become more strict. This will need not only to increase operating cost, but also reduce utilization of the fleet, which could be overall positive. World and oil demand. China's impressive demand is expected to continue with the further increase next year. This chart will increase imports from the Caribbean and West Africa will lead to extra ton-mile demand.

There seem to be a consensus regarding a high oil price going forward and speculation regarding a call on OPEC is being mentioned again positive for the tanker markets. Disruptions are positively normally for the market, but the increased activity by the Somali pirates is of a great concern.

Frontline OE. As mentioned in the highlights, we have made some positive charter adjustments both in and out. Two VLCCs were chartered out at high rates and at the same time, we have extended three ships at substantially lower rates. We have quite -- we have a lot of commercial waiting time in the third quarter are now a double hull VLCCs, but we still managed to generate a decent result.

It more or less took the same attitude than the supply side, our tonnage will look quite different and this will benefit the market. Our recent financing deal shows, we can still obtain attractive financing terms whereas other owners are struggling on this field.

Charter coverage of our Q2 presentation, there was quite a lot of greatness regarding our charter coverage. I would say our fixed charter coverage gives us a good downside protection which clearly the Q3 results that witnessed to. And the market related coverage, they additionally have would allow us to benefit from any market spikes.

When the timing is right, we would like to expand our fixed coverage with two to three ships. These four things I've just mentioned is making us quite well positioned for the market opportunities we believe will start to come in the New Year.

And I think with that, we're ready to take questions. Thank you.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) Our first question today comes from Jon Chappell from J.P. Morgan. Your line is open.

Jon Chappell – J.P. Morgan

Thank you. Good afternoon. Jens, you mention a couple of times increasing the charter coverage, but then you also mentioned on slide 20 that there's hasn't been a lot of liquidity in the three-year time charter market. So there is really a big question mark about what rates currently are? How are you weighing your desire to increase your time charter coverage versus the fact that the market is pretty much at the bottom right now and you may be taking a hair cut on the Time Charter Out contracts? How do you look at the timing of when you want to increase that coverage?

Jens Martin Jensen

Well, I think we are looking at the markets, but I agree with you, the timing is not right now and we are not chartering any ships out, we probably more tempted to take in ships. So that's why we are following this market on, I would say, daily basis.

And if the timing is right, then well go ahead. Of course, various charters are having different long-term view, but then we are following the market, but the timing is not right now.

Jon Chappell – J.P. Morgan

And on the charter end, you just re-signed three of that lower rates, but you dont have the Nordic-American ships anymore. How many ships are you chartering in right now? And is there any availability to increase that at present levels?

Jens Martin Jensen

Right now, we have four ships. We have decreased Time Charter In and, we are comfortable with that level. We could add some more ships to that. But, thats what we have right now. Of course, the Nordic ships you mentioned, we had them in on a floating rate basis and that was not really a big impact on our results, otherwise of course our Suezmax is lined in Gemini pool.

Jon Chappell – J.P. Morgan

Okay. So just four charted in VLCCs, three of them at 26,500. So your chartering expense should be coming down going forward, is that correct?

Jens Martin Jensen

Yeah. Those three ships whose tender rate will commence in January next year.

Jon Chappell – J.P. Morgan

Okay. And then just two more. Jens, you were in the [process] around late August or early September talking about how floating storage may come back in the fourth quarter and help the market, it hasnt yet, but at the time I think you said, youre getting some increase for your own vessels. Have you seen any increase in increase for floating storage at this point or is that completely off the table?

Jens Martin Jensen

No, they seem to willing to take ships on storage, but the rates, as they are willing to take in that, I think, right now you can get better on the spot market. We have the same thing during the third quarter.

You had charters willing to take in VLCCs at around 25, but we did one or two at those levels. I think there is some kind of bottom level in the market where some of these storage place are coming into play, but right now, its better to play in the spot market.

Jon Chappell – J.P. Morgan

Okay. And then finally just one for Inger, you mentioned that the $29 million in equity payments can be covered by the excess liquidity from the convertible. After that $29 million spent, how much excess liquidity would still be remaining from the convertible offering earlier this year?

Inger Klemp

Well, I think we havent really given that number to you before either. So -- and I dont really have that on top of my head, but if you call me at some other time we can talk about it.

Jon Chappell – J.P. Morgan

Okay. Thanks Inger. Thanks Jen.

Jens Martin Jensen

Thank you.

Inger Klemp

Thank you.

Operator

Our next question today comes from Justin Yagerman from Deutsche Bank. Your line is open.

Josh Ketzerfarm – Deutsche Bank

Good afternoon, guys. This is Josh [Ketzerfarm] for Justin.

Jens Martin Jensen

Yeah. Hi.

Inger Klemp

Hi.

Josh Ketzerfarm – Deutsche Bank

I just wanted to start off on the topic you mentioned on the ton-mile demand phenomenon, and how that was actually shrinking? Were certainly seeing that China was sourcing more oil due to the pricing differences, especially in the Middle East.

And then, you mentioned that kind of has changed in Q4, rates are kind of remain fairly weak, especially in VLCCs. What are the catalyst do you see to bring up the market I guess, or do you see a kind of winter rally still happening?

Jens Martin Jensen

I think, probably weve seen that the rates in the fourth quarter has finally improved, not at great levels, but its improved from the third quarter. What we need to see to really rock the market is of course the imbalance in the rate between the Atlantic and the eastern markets where youll have shifts balancing back and forth between the markets. That will give some change in the market, I think well have a fairly high utilization of the fleet.

Weve seen that when the Suezmax market started to tighten up a little bit, we saw more VLCCs being benefiting in. And those are the kinds of void as we need to have, and of course, we need to have the long laden lakes from the Caribbean, West Africa and may be even from Brazil. If we have those kind of combinations, the market will tighten.

Josh Ketzerfarm – Deutsche Bank

Yeah. I understood. And I guess at the end of Q2, as you are very bullish on Chinese oil demand and thats also remained strong whereas US and EU and OECD oil imports have been fairly weak and the US has been sourcing more oil from closer places such as Canada and Mexico. Do you see this as a hindrance in -- especially in the first half of next year, or do you have any outlook on this kind of reversing course?

Jens Martin Jensen

Well, I think we have seen that the oil demand has gone up. The total world oil demand has gone up, OPEC production has increased. Of course we are not back to the super levels that we saw on 2008, but it actually increased between 1% to 1.5%, we have seen in the opening production. And of course, we need that should be ramped up and traditionally that should go to the American markets and so we need American economy to get back on track.

Josh Ketzerfarm – Deutsche Bank

And just, are you able to speak at all -- on your Q4 to date earnings in the spot market and or at least kind of -- or just generally how they’ve may be tracked towards some of the published averages or is that -- towards the TD3 and TD5 rates youve seen so for?

Jens Martin Jensen

We dont normally comment on or guide on that. So I prefer not to.

Josh Ketzerfarm – Deutsche Bank

Thanks. Worth a [shot]

Jens Martin Jensen

Okay. Thanks.

Operator

Our next question today comes from Sal Vitale from Sterne, Agee. Your line is open.

Sal Vitale – Sterne, Agee

Good morning. Thank you.

Inger Klemp

Good morning.

Jens Martin Jensen

Good morning.

Sal Vitale – Sterne, Agee

Thank you. Could you give a little bit of insight into the dividend? And specifically, if I look at the other dividend at $0.25 dividend that was declared as a percentage of, say cash flow per share, but something like about 33% this quarter.

In prior quarter it’s being closer through to that about 50% level, was there anything, I mean is there anything in the current quarter that cause the dividend to be a little lower? Is it -- just an expression caution on your end? Can you just speak to that list?

Inger Klemp

No, the way we decide dividend to pay is not necessarily historical numbers ended the 30th of September, but a small [digitization] going forward, the capitation going forward. So if you look at all performance the excess cash flow, which is available for paying dividends, and yeah, so its got specific reason -- I mean, we have a drop in the earnings from the last quarter.

If you would like to compare it to the last quarter, which was $69 million, and last quarter we paid $0.75, now we are saying that we are paying $0.25. And I dont think that should be any reasonable, compared to the drop in earnings. Also...

Jens Martin Jensen

I think we had the same question also here in Norway, when we did the presentation this morning. If you look at the earnings per share, excluding the gain that we have made $1.89 and we would be have seen paying now of $1.75, so we are pretty much paid out.

Sal Vitale – Sterne, Agee

Okay. Thank you. And then just one follow-up question on your decider time charter coverage for 2011. When do you think that you will be able to increase that level from the current level? Is it something that you want to accomplish say by probably not by year-end at this point, but probably by the end of the first quarter or so?

Jens Martin Jensen

Well, we dont have to call it, its just -- I think every company makes a strategy and we would like to cover a few more ships. But we dont have to do it if the level we dont think is right to justify the investment, and we will not do it. But, we are following the market and maybe well do it in the first quarter next year, hopefully the market will be better by then. And then its the right timing, but there is not a specific date to put on it.

Sal Vitale – Sterne, Agee

Okay. Thank you.

Jens Martin Jensen

Thank you.

Inger Klemp

Thank you.

Operator

Our next question today comes from Gregory Lewis from Credit Suisse. Your line is open.

Gregory Lewis – Credit Suisse

Yeah. Thank you and good afternoon. I guess real quick dealing question I have is on could you talk a little bit about decision by Frontline to [start] navigate a 15% stake?

Jens Martin Jensen

Well, we've been sitting on the shareholding and navigate, and of course, we had -- we made the investment that we could have some kind of synergy with the other activities we have in the company that did not really happen. I would guess also, maybe you can say the same thing from seeing from a navigate side. So we have agreed with them. We would sell our shares and nothing really dramatic with that.

Gregory Lewis – Credit Suisse

Okay. Thank you very much.

Jens Martin Jensen

Thank you.

Operator

Our next question today comes from Michael Weber from Wells Fargo. Your line is open.

Michael Weber – Wells Fargo

Hey. Good morning, guys. How are you?

Jens Martin Jensen

Good morning.

Inger Klemp

Good morning.

Michael Weber – Wells Fargo

Great. Most of my questions have already been answered, but I do want to talk a little bit about acquisitions. There is some pretty large market participants in the market right now looking either by end larger asset class or they are potentially sales from larger assets and that the VLCC is doing in that space. How attractive right now do you think current asset values are?

And then, you talked about potentially chartering in, but I mean on the asset side, how attractive are asset values here and then if you don't think you’re attractive here, where would they need to go, I guess, on a percentage basis before you guys really start looking at making some more acquisitions?

Jens Martin Jensen

I think that the acquisitions on the corporate level will probably be more interesting than if you look at specific assets. I think the values of ships have held up quite well, and I don't see a collapse in these values.

So I think, there would probably be some corporate things out there, which assumes that -- looks interesting. So, of course, we are not the only one looking at that, but I think that’s probably where things will be going.

Michael Weber – Wells Fargo

Okay. Fair enough. Ing, you mentioned earlier, you look at adding charter coverage across the VLCCs and Suezmaxes, are you noticing any considerable difference there between liquidity and the period markets for VLCCs and Suezmax? And should we expect that to be spread out pretty evenly just a couple of ships from both weeks?

Jens Martin Jensen

Yeah. It could be in both segments. Like I just mentioned before, I added, I know you didn’t hear that, we don’t have to charter any ships out on Jinhaiwan, we would like to add one of two or maybe three more ships.

It could be on the VLCC Suezmax, its -- we haven't made that up, but the timing is not right and we believe may be the timing would be coming in the next quarter. But there is not a specific data, when we have to do and we may end up not doing it. So...

Michael Weber – Wells Fargo

Really.

Jens Martin Jensen

Yeah.

Michael Weber – Wells Fargo

Okay. Fair enough. On the financing and obviously, the 70% of the available of these securities -- you keep securing that on your newbuilds, can you guys remind us what the terms were on the new financing from a spread perspective and then term?

Inger Klemp

No. We don't usually give out information about the spreads.

Michael Weber – Wells Fargo

Okay. All right. I guess within your conversations I guess with vendors, I'm assuming it's kind of a consortium I guess of European and Asian banks. Anything you guys have spoken to that in the past, is there any sort of difference? Have you noticed any sort of difference between terms and either spread or length between the European and Asian banks or is everyone basically kind of working off of same sheet of music?

Inger Klemp

Not really. I think it's not a big difference. Of course, its' defers between banks and then individual basics if we can call it that, but it's not a very big spread. I think that's more client wise in a way. From a banks perspective, I think they're quite have -- have quite common views on a one specific kind in a way or customer.

Michael Weber – Wells Fargo

Okay. All right. Fair enough. And I guess one more question on the dividend, I know you just mentioned it. You guys have kept it pretty flexible over the last 18 months, kind of moving around with the markets and I guess the cut from $0.75 is no different. When you look at kind of more muted Q4 operating environment and your expectations for 2011, is it pretty reasonable to assume kind of a conservative approach going forward particularly with regards to the Q4 dividends? How should we think about that?

Jens Martin Jensen

Well, I don't really want to comment on the dividend itself, because we have a -- I think our policies is pretty much the same. But again when people asked us end of 2008, how do you see 2009. And we said, well, we are cautiously optimistic in 2009. And we made around $100 million profit because the same question last year, how do you think about 2010? We said we are cautiously optimistic.

Now, we had made $1073 million for the first nine months. So this is not been a bad year historically, but if you ask me about 2011, I'm not optimistic person by nature. So I hope it will be okay. I think that's -- the market could swing many ways. I think we believe in various sectors which would play in and we'll see a volatile market, but we still think we will see fairly decent VLCC rates on average for 2011.

Michael Weber – Wells Fargo

Okay. Great. That's very helpful. Thanks for the time, guys.

Jens Martin Jensen

Thank you.

Inger Klemp

Okay. Thank you.

Operator

(Operator Instructions) We will take our next question from Fotis Giannakoulis from Morgan Stanley. Your line is open.

Fotis Giannakoulis – Morgan Stanley

Yeah. Hi, guys. You mentioned earlier that the asset values, you don't expect that they will collapse, but we have seen during the last three months some signs of a decline, earlier this week, you haven’t sold a vessel at the lower price, that you have sold a similar vessel three months ago.

Can you explain why do you think that there is going be the support in asset values? And what do you view the value of a VLCC, right now, of the brand new VLCC?

Jens Martin Jensen

As I said, your reference was of course to specific lagoon, which was sold, which is 99 built and it's being sold at 55 million. So it will be delivered, generally next year, by then it'll be 12 years old. I think at 12 year old, VLCC hedging 55 million, I think is a pretty good price.

And if you compare it to a newbuilding at 105 million, then you have pretty much of resilience of 55 million after 12 years, I think that's pretty decent values. I think when the value goes down...

Fotis Giannakoulis – Morgan Stanley

What did you see --

Jens Martin Jensen

Another key of buyers coming in. And I think there was actually a few buyers who would have bought that ship. So we think that -- of course values as a review has gone down a little bit, but we have not seen any dramatic decrease in prices.

Fotis Giannakoulis – Morgan Stanley

What did you attribute this strength in asset values? And what there is, that keeps asset values right now that strong?

Jens Martin Jensen

Well, if you don't get this year we're in now and the average rates we've seen so far for VLCCs is probably around 37, $38,000 a day and that makes sense if you're paying $55 million for VLCC.

Fotis Giannakoulis – Morgan Stanley

Can you also explain, what is the difference in the slippage? Why the slippage in VLCCs is so much lower compared to Suezmax? And if you think that this is a slippage number that you have on your presentation at 22%, it will go up or it's even made sort of the two markets that makes the slippage rates that different?

Jens Martin Jensen

The main reason for the bigger slippage -- sorry in the Suezmax market is that two of the biggest producers of Suezmax, new buildings at two Chinese shipyards and they've had quite a big delay through the new building program and that's why you've seen this big disruption on the Suezmax market.

I think the Suezmax number will probably go down to around 25%, I think because of these Chinese yards and having less ships to deliver, but I think on the VLCC side, I'll not be surprised that these 22% were made to go up to around 25, because that's where we will see really the expensive prices.

Next year, the average VLCC new building cost us around 135 million and that's of course will take us all to make sense out of that for some owners.

Fotis Giannakoulis – Morgan Stanley

Okay. Thank you, gentleman.

Jens Martin Jensen

Thank you.

Inger Klemp

Thank you.

Operator

We will take our next question from Alaric Nightingale of Bloomberg. Your line is open.

Alaric Nightingale – Bloomberg

Hello. I just wanted to ask two questions, first did you say very decent or fairly decent VLCC license 2011?

Jens Martin Jensen

Yeah. Well, I think that's fairly decent.

Alaric Nightingale – Bloomberg

Fairly descent, so I couldn't – okay. The second question, you mentioned thermal demand increasing next year. Do you think Chinese thermal demand will expand faster than the tonnage demand and if so why?

Jens Martin Jensen

Well, that's of course that's depends a little bit of how many ships would be delivered. I think if you look at the VLCC fleet this year, they are having a very modest fleet growth and if there is delays and disruption next year we'll have the same thing.

I think the Chinese which you have read and probably also be part of in Bloomberg has made some [cost] massive investments in Brazil and many of the Caribbean countries and in West Africa.

So of course if all that will result in natural oil on the water, then we will have a quite big increase in ton-mile. I haven't calculated if it's going to be absorbed in the fleet, but with some disruptions here and there hopefully, we'll have a more stable market next year.

Alaric Nightingale – Bloomberg

Obviously, time is increasing as refining capacity. Is there another possibility that they’ll be able to source more from the Persian Gulf given the strength of their economy? And perhaps that could even mean, okay, ton-mile could go up and not as quickly as the tonnage of cargo will go up?

Jens Martin Jensen

No. I think of course it’s the pricing issue also, but for China we have a rather softer level and if they are importing oil just for immediate refining or stock piling I think that's always a big question, we don't know what exactly is happening in China, they've also build up their strategic reserves. So I guess there will be sourcing some of that, but I can't really say 100% sure, what they will do.

Alaric Nightingale – Bloomberg

Thank you.

Operator

(Operator Instructions) As we have no further questions at this point, I'd like to hand the call back over to your host for any additional or closing remarks. Thank you.

Jens Martin Jensen

I would just like to say thank you for everybody for dialing in. And I would like to thank everybody in our company for dedicated work in the third quarter. And I would like to say, Thanksgiving to the people dialing in from America. Thank you.

Inger Klemp

Thank you.

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