Frontline (FRO) Q2 2026 Earnings Call: Rekordgewinn und starke Q3-Buchungen

Wichtigste Erkenntnisse

• Frontline plc (FRO) verbuchte das bisher stärkste Quartal seiner Unternehmensgeschichte: Im 2. Quartal 2026 erzielte das Unternehmen einen Gewinn von 659,2 Mio. US-Dollar bzw. 2,96 US-Dollar je Aktie sowie einen bereinigten Gewinn von 580,2 Mio. US-Dollar bzw. 2,61 US-Dollar je Aktie.
• Der bereinigte Gewinn stieg im Vergleich zum 1. Quartal um 235,3 Mio. US-Dollar, was in erster Linie auf höhere Erträge auf Time-Charter-Äquivalent-Basis (TCE) zurückzuführen ist.
• Im 2. Quartal erreichten die TCE-Raten 152.700 US-Dollar pro Tag für VLCCs, 111.500 US-Dollar für Suezmax-Tanker und 92.400 US-Dollar für LR2/Aframax-Schiffe.
• Die Buchungen für das 3. Quartal blieben stark: 86 % der VLCC-Tage wurden zu 156.900 US-Dollar pro Tag gebucht und 79 % der Suezmax-Tage zu 117.400 US-Dollar pro Tag. Bei LR2-Tankern waren 70 % der Tage zu 81.000 US-Dollar pro Tag abgedeckt.
• Die Gesamtliquidität belief sich zum 30. Juni auf 1,2 Mrd. US-Dollar, einschließlich 901 Mio. US-Dollar an ungenutzten revolvierenden Kreditlinien. Frontline verzeichnet bis 2028 keine Fälligkeiten von Verbindlichkeiten und bis 2030 keine wesentlichen Fälligkeiten.
• Das Management erklärte, dass geopolitische Störungen, längere Handelsrouten und Ship-to-Ship-Transfers das effektive Tankerangebot weiterhin verknappen, während das wachsende Auftragsbuch eine längerfristige Sorge bleibt.

Wichtigste Finanzdaten

Geschäfts- und operative Entwicklung

Die VLCC-Flotte von Frontline verzeichnete im 2. Quartal mit 152.700 US-Dollar pro Tag die stärkste TCE-Rate. Die Raten für Suezmax und LR2/Aframax lagen bei 111.500 bzw. 92.400 US-Dollar pro Tag. Alle ausgewiesenen TCE-Zahlen wurden auf Load-to-Discharge-Basis berechnet.

Das Unternehmen verzeichnete im 2. Quartal Betriebskosten einschließlich Dockungen von 9.200 US-Dollar pro Tag für VLCCs, 9.000 US-Dollar für Suezmax-Tanker und 13.300 US-Dollar für LR2-Tanker. Die flottenweiten Betriebskosten ohne Dockungen lagen im Durchschnitt bei 8.700 US-Dollar pro Tag.

Nach der Auslieferung der verbleibenden VLCC-Neubauten und dem Abschluss zweier VLCC-Verkäufe rechnet Frontline mit dem Betrieb von 40 VLCCs, 19 Suezmax-Tankern und 18 Aframax/LR2-Tankern. Das Durchschnittsalter der Flotte wird 6,6 Jahre betragen, wobei 100 % der Schiffe ECO-Schiffe sind und 59 % mit Scrubbern ausgestattet sind.

Frontline senkte seine gewichtete durchschnittliche Finanzierungsmarge von 178 Basispunkten Ende Q1 auf voraussichtlich 126 Basispunkte nach Abschluss des Refinanzierungsprozesses in Q3. Das Unternehmen hat sich zudem Finanzierungen für Neubauten von bis zu 737 Mio. US-Dollar gesichert.

Das Management führte die außergewöhnliche Entwicklung des Tankermarktes auf Störungen rund um den Golf von Oman, das Rote Meer und das Schwarze Meer sowie auf längere Seewege und verstärkte Ship-to-Ship-Transfers zurück. Frontline schätzte, dass die Rohölexporte aus dem Inneren der Straße von Hormus um 82 % gefallen sind, während die Ausfalltage pro VLCC aufgrund handelsbedingter Verzögerungen und logistischer Ineffizienzen um 23 % stiegen.

Ausblick des Managements

Für das 3. Quartal 2026 hatte Frontline bereits 86 % der VLCC-Tage zu 156.900 US-Dollar pro Tag, 79 % der Suezmax-Tage zu 117.400 US-Dollar und 70 % der LR2-Tage zu 81.000 US-Dollar gebucht.

Das Management schätzte die durchschnittlichen Cash-Breakeven-Raten für die 12 Monate bis Juni 2027 auf rund 23.800 US-Dollar pro Tag für VLCCs, 25.700 US-Dollar für Suezmax-Tanker und 22.200 US-Dollar für LR2-Tanker. Die flottenweite Schätzung liegt bei 23.900 US-Dollar pro Tag einschließlich geplanter Dockungen bzw. bei 22.300 US-Dollar ohne diese Kosten.

Basierend auf der aktuellen Flotte, vertraglich vereinbarten Raten und durchschnittlichen Spotraten zum 28. August schätzte das Unternehmen das jährliche Cash-Generierungspotenzial auf 2,3 Mrd. US-Dollar bzw. 10,35 US-Dollar je Aktie. Ein Anstieg der Raten um 30 % würde diese Schätzung auf 3,1 Mrd. US-Dollar erhöhen, während ein Rückgang um 30 % sie auf 1,5 Mrd. US-Dollar verringern würde.

Risiken und zu beobachtende Faktoren

• Das Management verwies auf Unsicherheiten hinsichtlich der Frage, wie lange die USA, China und andere Märkte ihre Ölreserven weiter abbauen können, insbesondere da die Nordhalbkugel vor der Wintersaison steht.
• Eine spätere Rückkehr Chinas zu aggressiveren Rohölkäufen könnte die Tankernachfrage stützen, jedoch erklärte das Management, dass der Zeitpunkt weiterhin hochgradig ungewiss sei und womöglich stärkere Auswirkungen auf die Ölpreise haben werde.
• Das nominale VLCC-Auftragsbuch entspricht rund 33,5 % der bestehenden Flotte und nähert sich 40 %, wenn man es an Frontlines Schätzung der kommerziell effizienten Flotte misst.
• Über die Schiffssegmente von Frontline hinweg sind 707 Schiffe bestellt, während voraussichtlich 578 bestehende Schiffe in den nächsten fünf Jahren ein Alter von fast 20 Jahren erreichen werden. Das Tempo von Verschrottungen bleibt langsam.
• Die Schiffsverfolgung ist weniger verlässlich geworden, da viele Schiffe ohne sichtbare Trackingdaten fahren, was zu Lücken bei den Schätzungen des Marktvolumens führt.
• Die geopolitischen Risiken rund um die Straße von Hormus, das Rote Meer und das Schwarze Meer bleiben hoch, wobei erneute Houthi-Aktivitäten die Effizienz der Schiffsrouten weiter beeinträchtigen.

Highlights der Analysten-Fragerunde

Laut Management ist die Zahl der vor Anker liegenden beziehungsweise wartenden Schiffe rund um den Golf von Oman und entlang der indischen Küste mit der Zunahme von Ship-to-Ship-Aktivitäten gestiegen. Unsichere Ladungszeitpläne führen zu vergüteten Verzögerungen und verringern die effektive Schiffsverfügbarkeit.

Frontline plant keine wesentliche Änderung seines Kapitalallokationsmodells. Das Management bezeichnete den Verschuldungsgrad als komfortabel und bekräftigte seine Bevorzugung, verfügbare Barmittel an die Aktionäre auszuschütten, anstatt sie zu den derzeitigen Schiffspreisen zu reinvestieren. Die Erlöse aus zwei jüngsten VLCC-Verkäufen wurden ausgeschüttet, da das Management nur begrenztes Reinvestitionspotenzial sah.

Die Nachfrage nach längerfristigen VLCC-Chartern hat sich verstärkt. Das Management erklärte, dass derzeit mehrere Dreijahreschartern zu Raten nahe 80.000 US-Dollar pro Tag abgeschlossen werden könnten, abhängig von der Lieferposition des Schiffes. Frontline beabsichtigt dennoch, eine erhebliche Präsenz am Spotmarkt beizubehalten.

Das Unternehmen verkaufte zwei fast 10 Jahre alte VLCCs für rund 270 Mio. US-Dollar. Nach Berechnungen des Managements hätte das Behalten der Schiffe das Vertrauen erfordert, bis zum Erreichen eines Alters von 20 Jahren fast 70.000 US-Dollar pro Tag zu verdienen, um Frontlines Ziel einer Eigenkapitalrendite von 15 % zu erreichen.

Das Management erläuterte, dass die höhere Cash-Breakeven-Schätzung für Suezmax von 25.700 US-Dollar in erster Linie sieben geplante Dockungen in den nächsten 12 Monaten sowie die angenommene Inanspruchnahme bisher ungenutzter revolvierender Kreditlinien widerspiegelt.

Vollständiges Transkript der Telefonkonferenz zu den Quartalsergebnissen

Vollständiges Transkript der Telefonkonferenz

Ausführungen des Managements

Operator

Good day, and thank you for standing by. Welcome to the Q2 2026 Frontline plc Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Mr. Lars Barstad, CEO. Please go ahead.

Lars Barstad

Thank you very much. Dear all, thank you for dialing into Frontline's quarterly earnings call. Frontline is reporting its best quarter ever. Our long-term strategy of growing voyage base and VLCC exposure during the slim years post-COVID has come to fruition, and our shareholders are now reaping the benefits. There are lots of moving parts in this market and no playbook. The key takeaway, though, is that the prevailing situation will have long-term implications. The current environment puts our lean organization to the test, and we are extremely thankful for the hard work the Frontline global team is putting in, in keeping the propellers turning in this ocean of profits.

Before I give the word to Inger, I'll run through our TCE numbers on Slide 3 in the deck. In the second quarter of 2026, Frontline achieved $152,700 per day on our VLCC fleet, $111,400 (sic) [ $111,500 ] per day on our Suezmax fleet and $92,400 per day on our LR2/Aframax fleet. So far in the second (sic) [ third ] quarter of 2026, 86% of our VLCC days are booked at $156,900 per day, 79% of our Suezmax days are booked at $117,400 per day and the LR2s are catching up, having booked 70% of the days at $81,000 per day. Again, all numbers in this table are on a load-to-discharge basis with the implications of ballast days at the end of the quarter this has.

I'll now let Inger take you through the financial highlights.

Inger Klemp

Thanks, Lars, and good morning and good afternoon, ladies and gentlemen. We report profit of $659.2 million or $2.96 per share and adjusted profit of $580.2 million or $2.61 per share in the second quarter of 2026. As Lars mentioned, this is the best quarterly profit and adjusted profit ever recorded by the company. The adjusted profit in the second quarter increased by $235.3 million compared with the previous quarter, primarily due to an increase in our TCE earnings. Ship operating expenses decreased by $4.3 million from previous quarter, and that was mainly due to sales of 8 VLCCs in the first quarter and 2 Suezmax tankers in the second quarter and an increase in supplier rebates, which is partially offset by an increase in general running costs.

Administrative expenses decreased by $2.4 million from previous quarter. This excludes the synthetic option revaluation gain of $5.3 million in the second quarter and then synthetic option revaluation loss of $5.8 million in the first quarter. Adjusted interest expense decreased by $4.8 million from previous quarter due to lower debt and decrease in interest rates. Lastly, depreciation decreased by $4.7 million from previous quarter due to sales of vessels.

Let's then look at the balance sheet on Slide 5. Frontline has a solid balance sheet and a very strong liquidity of $1.2 billion in cash and cash equivalents, including undrawn amounts of revolver capacity of $901 million, marketable securities and minimum cash requirements bank as per June 30. We have no meaningful debt maturities until 2030. Remaining newbuilding commitments as per end June was $601.1 million and relate to the acquisition of the 9 newbuildings from affiliates of Hemen. The company has secured new building financing of up to $737 million as set out in the press release.

Then let's turn to Slide 6. In the second and third quarter of 2026, we reduced our financing costs through a combination of margin reductions on existing facilities for the remaining tenors and a full refinancing of selected facilities, reducing the weighted average interest rate margin by approximately 52 basis points from 178 basis points at the end of the first quarter of 2026 to 126 basis points upon completion of the process in the third quarter of 2026. The reduction was driven by amendments with 24 basis points, refinancings with 21 basis points and new building financing and asset sales with 7 basis points. We have no debt maturities until 2028, and no meaningful maturities until 2030, supported by increased tenor across the portfolio as shown in the maturity chart.

Then we can look at Slide 7, fleet composition and cash breakeven rates and OpEx. Upon delivery of the remaining VLCC newbuildings and sale of 2 VLCCs, our fleet consists of 40 VLCCs, 19 Suezmax tankers and 18 Aframax/LR2 tankers at an average age of 6.6 years and consists of 100% ECO vessels where 59% are scrubber fitted. We estimate that average cash breakeven rates for the next 12 months of approximately $23,800 per day for the VLCCs, $25,700 per day for the Suezmax tankers and $22,200 per day for LR2 tankers, with a fleet average estimate of about $23,900 per day. This includes dry dock costs for 7 VLCCs, 7 Suezmax tankers and 8 LR2 tankers. The fleet average estimate excluding dry dock cost is about $22,300 per day or $1,600 per day less. We recorded OpEx, including dry dock in the second quarter of $9,200 per day for VLCCs, $9,000 per day for Suezmax tankers and $13,300 per day for LR2 tankers. This includes dry dock of 1 VLCC and 3 LR2 tankers. And the Q2 '26 fleet average OpEx excluding dry dock was $8,700 per day.

Then lastly, let us look at Slide 8 and the cash generation. Frontline has a substantial cash generation potential with about 27,800 earning days annually. And as you can see from this slide, the cash generation potential basis current fleet, TC rates and average spot market rates as of August 28 is $2.3 billion or approximately $10.35 per share, providing a cash flow yield of 24% basis current share price. A 30% increase of these rates will increase the cash generation potential to $3.1 billion or $13.91 per share and at 30% decrease of these rates, we decreased the cash generation potential to $1.5 billion or $6.80 per share.

With this, I'll leave the word to Lars again.

Lars Barstad

[Technical Difficulty] center stage. We see increasing risk in and around the Gulf area, both in the Gulf of Oman, in the Red Sea. We also see increased risk in the Black Sea and the Houthis have become active again. Tanker rates remain high, inefficiencies carry the weight of the shipping market. And we also see high risk premiums on certain trades, in particular, inner AG, which is somewhat illiquid. But at least showing on the bottom left-hand chart, you can see how the now somewhat theoretical TD3C index is printing levels nearing $600,000 per day. We tend to look at the TD15 and it's being dwarfed in this connection. But if you look closely on the left-hand scale, it's actually showing very close to $200,000 per day. Oil balances are kept in check by aggressive inventory draws. We are extremely surprised that the oil price manages to keep in this band between, say, $78 and somewhat north of $90. U.S., China and the rest of the OECD are kind of the key sources of this inventory growth. The question is, of course, for how long can we grow.

The tanker order book paused over the summer. Lead times from ordering to delivery is now moving into 3.5 years. So we are talking about 2030 deliveries. And we see this has kind of created a bit of a vacuum in the ordering market after a quite frantic activity in the first half of the year. The long-term implications as fleets continue to age will be around the inventory refill story, energy security policies and in the case of some sort of relief or some sort of solution between U.S. and Iran, sanctions relief could also play a part. We are in the midst of the storm, I would say, but the long-term implications are at least easier to read.

If we move to Slide 10 and try and kind of analyze a little bit what's behind this. It's actually easier to analyze the market after the fact. We've had an 82% reduction in crude oil exports from inside the Strait of Hormuz. I know this is kind of a big question mark as certain agencies report higher exports than what's recorded out of the Middle East. Others are lower in respect of kind of transits by ocean through the Strait of Hormuz, Frontline are amongst the school of thought that believe we're somewhere between 4.5 million to 5.5 million barrels per day.

China crude imports have created a cushion to the oil price, we believe, and it's actually reduced by 35% in the same period. What's happened is that we've seen huge growth in inefficiencies in the market to the tune of 23% increase in idling days per VLCC. But I do note that this is not a waiting time or time that where owners like ourselves are fiddling around trying to figure out what to do. This is basically due to the trade itself, where inefficiencies are creeping into every aspect of the voyage and under contract and being paid, you are actually waiting. We've also seen a great increase in the trade between particularly Latin America to the east of Suez. This basically results in the effective fleet supply tightening despite a decline in volumes. The increased STS transfers of Fujairah and around Singapore and Malaysia also add to this.

If you can imagine the cargo flow that formerly used to be from inner Middle East Gulf to, say, Japan is now like a 3x trip. You go firstly from inner MEG to Fujairah in some sort of shuttling traffic. Then you by way of STS, put the oil into another ship that takes it to Malaysia, where you can do an STS operation before Japanese controlled ships take it into Japan. So basically moving the same barrels in an increasingly inefficient manner. We do see, though, that there are large gaps in the tracking data, and this also confuses us and most market analysts as a lot of vessels are sailing dark, leaving a big blind spot. The headline figures may no longer be representative of the market, but what is representative of the market is the rates that we are actually collecting.

If you move to the next slide, the flows from Atlantic Basin have grown, both outright by way of volume, but more importantly, by the way of distances it's actually sailing. In a normal market, you will have kind of almost equal volume going from, say, U.S. Gulf into Europe as into Asia. Now a larger part of the volume being exported out of the Atlantic Basin is actually taking the long route. With the Houthi action, we're also seeing some very specific inefficiencies for the Yanbu exports that formerly used to sail through the Red Sea, where it's now, to a greater degree, going northbound, basically by way of you fill up a VLCC 3 quarters full, take it through the Suez Canal and then load up the remaining barrels in Sidi Kerir, which is the end of the Sumed pipeline. The supply shortage from the Middle East is further compensated by inventory draws in virtually any or every corner of the world with U.S. and China being the largest contributors.

Asia ex China has increased the sourcing, again, adding or creating the same ton-miles. Despite the volume shortfall, as previously mentioned, the inefficiency and the growing distances yields the high tanker demand we're currently experiencing. The big question, though, and this is the question as we near winter is how long can and will we draw on inventories as we approach the colder season in the Northern Hemisphere. If you look at the top right chart, this is OECD onshore crude inventories. We have drawn materially. The total, including kind of other inventories as well is actually nearing 0.5 billion barrels. There is still a lot of barrels to draw, but there is certainly a limit to how far down the various nations are willing to go in this very insecure situation we're in.

If we move to Slide 12 and look at the order books. These order books continue to grow or continued, I would like to say, going into Q3. Currently, looking at kind of the headline number of VLCCs, the order book is around 33.5% of the existing fleet. I do, however, think that one should look at the efficient fleet. And as we note here, around 166 to 167 vessels are not a part of kind of the commercially traded fleet, meaning that the VLCC order book currently is, in fact, very close to 40%. If you do the same kind of analysis across the asset classes that Frontline is exposed to, you'll get to that the current kind of order book to fleet ratio is in the mid-30s percent. We're actually closing in on what we saw in 2008, 2009. And this is, of course, a concern looking forward. However, if you look at the aging of the fleet, which we actually didn't have to this extent back in the late 2010, the situation looks far more balanced.

So if you move to Slide 13, you can see that the total order book of the asset classes we're involved in currently stands around 707 ships. As they deliver over the next 5 years, we'll see 578 vessels moving towards the 20-year threshold, which means that we'll have a total population of 1,293 vessels coming to age, assuming no scrapping. This is, of course, dwarfing the current order book.

If we have a look at the summary then from this presentation, the current market dwarfs the previous cycles. I'd like to draw your attention to the orange column on the right-hand side. Looking at what we thought was the strongest market we've ever seen in 2004, we're now twice that almost. The index is lying a little bit because a certain part of it is, of course, being weighed by both TC1 and TD3, which are inner AG loadings, but still including that, we're way beyond what we've seen in previous years. And as I mentioned earlier in the presentation, constricted global oil supply yields inefficiencies, and we see new trades and much longer trade lanes. Growing concern is starting to come forward for the supply cushion provided by primarily U.S. and China. We have the Russia-Ukraine situation adding fuel to the fire with increased risk in the Black Sea. We also see reduced Russian product exports going forward. Although this is, in many cases, sanctioned barrels, it still adds to the product pool and in particular affects the diesel supply going forward. The growth in the tanker order book is slowing as the lead times are extending. We also see that yard expansions are stretched. There's been a little bit of a period now since we've heard of new berths being launched, particularly in China. Energy security and inventory situation is likely to dominate the narrative if the current situation persists into the winter. Again, Frontline is center stage with our VLCC heavy, efficient business model. And we do see that the long-term period market is actually starting to price in these disruptions to last for much longer.

With that, I would like to open for questions and answers.

Operator

[Operator Instructions] We are going to take our first question, one moment. And this question comes from John Chappell from Evercore ISI.

Fragen und Antworten

Jonathan Chappell

Lars, last quarter, you spoke to, I think it was 5% of the fleet that you were estimated was sitting outside of the strait, and that was part of the inefficiencies. Didn't mention that today. Obviously, you had a lot of other data, but do you have an update on that? And as it relates to that, is that just right outside of the strait? Or is there a much greater geographical area that we're talking to where a lot of ships are idling and basically adding to the inefficiencies?

Lars Barstad

Surprisingly, we are actually observing that, that's kind of number of ships that are idling outside of Oman, you could say, or the Gulf of Oman, stretching basically all down the Indian Coast has actually increased. But this has increased with the growing kind of volume coming out of the Middle East by way of STS. So firstly, you have the pipeline coming into Fujairah and the kind of the Omani coast outside. But secondly, now you have kind of an increased or have had at least an increased traffic in vessels coming out for STS business.

The timing of this is somewhat difficult to nail down. So it means that if you are a charterer and you book the ship, you're not exactly going to know the date that STS ship is going to be ready for you. So this is creating a lot of delays. So this is why we see actually the population sitting in that region in particular, is actually growing, completely illogical to be quite honest in the current market situation.

Jonathan Chappell

Okay. Second one, more strategic. Obviously, a generational market right now, as you laid out in the last slide. And I think Frontline's track record and business model has been clear for the last 30 years. But you're doing some things you haven't really done before with the time charters and like the 2 of the 3-year time charter, special dividend. Could this be an opportunity to really change the capital structure? I know Inger has done a lot with taking the cost of debt down and pushing all the maturities out. But could you use some of this generational upside to take the leverage down? Or is that just something that's not part of the DNA?

Lars Barstad

No, I would say it's not really a part of our DNA. As I think I've said many times, we have kind of an informal strategy of trying to cover kind of 1/3 of our revenues as well as covering 1/3 of our key costs being fuel or interest rates. Currently, the market conditions have kind of prompted us to secure some of the revenues on VLCCs. And we're actually a little bit above 30% right now as we wait for the last newbuildings to deliver. But I don't think it's really changed kind of the way we look at the capital allocation. Kind of our proposition to investors continues to be that we pay everything out and then we leave to the investor to decide whether if he wants to reinvest. That will only kind of -- and it's never really going to disturb our dividends. But I think the special dividends, which you pointed to, which came from selling 2 ships, why we decided to just pay it out was basically due to the fact that we didn't really see much of kind of upside in reinvesting it in the market in the current kind of price environment we're in.

So I think kind of Frontline will just continue as we've always done. We pay the money to our shareholders. The leverage that we have now is comfortable considering the current market and where we are on asset values and so forth. So I think one should kind of keep that in mind going forward.

Operator

We are now going to take our next question. And this one comes from Greg Lewis from BTIG.

Gregory Lewis

I did want to just -- if you could follow up, Lars, more on thoughts to John's question around the decision to do the longer-term time charters. Really, I'm kind of curious, these were obviously opportunistic. Historically, we've seen a lot of 1-year -- it seems like, hey, the price is pricey at the time, but 1 year, the time charters in the B market are available. I'm kind of curious how -- and you alluded to it, how is the actual depth of the 2, 3 and potentially longer time charter market for VLCCs as we kind of sit here looking at the back half of the year. Is there really customer demand for these that we could actually see maybe not Frontline, but a real increase of these types -- of these term deals going forward? Or was this kind of more of like a one-off?

Lars Barstad

No, it's a very good question. At the time when kind of these 2 time charters, the 2-year and the 3-year were concluded, I would say the depth was somewhat limited. But as we kind of got over the summer, currently, is quite deep. And this is what we alluded to in our presentation a little bit as well. It seems like kind of what is deemed intelligent money is now increasingly interested in getting kind of longer-term contracts on. So we're talking about oil majors and big kind of operators. So we could easily today do 3, 4, 3-year time charters now kind of if we were willing to accept the current levels, which is -- well, it's still south of $80,000 per day, but closing in. And it could actually be north of $80,000 depending on the position you can deliver the ship in.

So I would say this is -- we don't have a crystal ball in this market, right? So this is why, of course, you tend to end up fixing a little bit too early in retrospect. But I must say that the liquidity wasn't really there either. So you basically just had to make a decision. But now I think the game has changed a little bit. And we see -- I think a good indicator is looking at the FFA market. Right now, exclusive of the Middle East, so exclusive of TD3C, the TD22, which is U.S. Gulf to Asia kind of marker, that paper is trading kind of close to $100,000 per day for 2028 when there is 115 VLCCs being delivered. So I think the market is starting to potentially price in some of the tailwinds that we've been discussing that in the event -- well, first of all, the expectation is the situation will prevail for a while, which is just going to add further draws to the inventory, which is further going to strengthen the tailwinds coming out of this ordeal at some point.

So I'm actually happy to say that right now, that market is pretty deep. I'd like to add one comment, though, which I probably should have mentioned. We did the 2 time charters, but we also sold 2 ships. This is actually our way of being able to capture the inner AG profits because the actor that was willing to pay that kind of money for almost 10-year-old ship was -- he had a reason for that, basically because it would enable him to get full control of the logistical chain of transporting oil through the Strait of Hormuz because owners are actually starting -- even the more kind of adventurous owners are starting to be a little bit reluctant to sail through the Strait of Hormuz, meaning that if you are an inner Middle East or inner AG exporter, you're much better off basically just paying $135 million for a 10-year-old ship and controlling the entire logistical chain. But for us, since we don't trade into the AG, at least not currently, that was a way for us to capture that premium. And hence, why we also just paid the proceeds out to shareholders.

Gregory Lewis

Okay. Okay. Super helpful. And then I did have a question on -- I just was looking for some clarity on Slide 12, where you kind of laid out your view of the VLCC fleet, the 900 ships. Just as we think about those -- and I think you mentioned that there's maybe 170 ships that aren't really part of the active fleet, maybe they're doing infrastructure or other types of issues. Is that the sanctioned fleet? Or is that outside -- is that other vessels because the sanctioned fleet I would think is trading? Like how do we think about where the -- and then I'm also curious, as we think about that sanctioned fleet, is a good way to think about it of those 170-ish sanctioned ships, those are all 15-plus year old vessels? Or is it kind of more broad across the, I guess, the fleet age profile?

Lars Barstad

No, I think -- no, it's more -- so that every vessel over 20 years is almost -- almost all of them are sanctioned. Because in the commercial kind of markets where we operate, very few actors accept vessels that are north of -- or older than 20 years. There are some trading, but they're trading them kind of internally for big oil majors or refiners where they kind of control the technical management and the vetting of the ship themselves. So that would almost put like an equal sign between 20-plus and sanctioned. So speaking of the sanctioned fleet, we're not really seeing kind of utilization increase on that fleet. But what we are seeing is that although extremely slowly, more and more are getting kind of sold for recycling. So it's a very, very kind of slow trend because you do face kind of the sanctions as you -- the recyclers face it when they need to or want to purchase the steel. But there are kind of starting to -- we're starting to see movements there where actually some of these ships are getting removed.

Operator

[Operator Instructions] We are now going to take our next question. And this one is from [indiscernible] Investments.

Unknown Analyst

Congratulations Lars, on a good set of numbers. I had a few questions. One on, when do you see the China -- as the winters will approach, China will come back in the market? And in that situation, how do you see the market?

And second one is on the Suez. You have a drought and obviously, the limited amount of ships are going to go through Suez now. How does it impact the flows for the smaller ships?

Lars Barstad

Yes. No, first of all, on China, I think kind of the question you're raising there is basically the big question -- the biggest question of them all in shipping because China has effectively reduced their imports at certain periods, they basically halved it. And from what we understand from industry sources is that Chinese kind of domestic demand is not materially reduced. And since imports are down to the tune of 3.5 million to 5 million barrels per day, for sure, they need to be drawing on inventories. They have a huge pile of oil. They've actually been building inventories in the last years, leading up to the situation in 2026. So they have a huge cushion. But at a certain point, when somebody in Beijing will start to think that maybe we should kind of be a bit careful on continuing here.

I don't know whether if we're there yet. I don't know if we will be there in a year's time. It's very difficult to say. But this is one of the kind of the big important questions. But I think it's more important in respect of oil price rather than shipping at this point. Of course, it could propel shipping even further if they start to aggressively chase barrels. But I think kind of this is more an oil price kind of thing than the shipping thing.

When it comes to Suez, I think respectfully, you might be confusing Suez for the Panama Canal. The Panama Canal is where the drought is being experienced, and that's where kind of we're seeing reduced volumes, but not really we -- because the Panama Canal, it's prioritized for containers and natural gas and LPG vessels and kind of the rates and the way that kind of transits are organized, very few tankers are using Panama Canal as it is. For the Suez, this has not yet been an issue that's been addressed.

Unknown Analyst

And one more question on the scrapping, what are your views? We have seen no scrapping because the market has been very good. But what's your view going forward in next, say, 12 to 24 months?

Lars Barstad

No. As I mentioned a little bit previously, we are seeing some small positive developments on recycling or scrapping as you say. The challenge has been that the recycling industry is a dollar-denominated industry, too. So it means that they have difficulty in actually paying cash for a vessel that is sanctioned. What we have seen is that the U.S. authorities have been willing to give exemptions for vessels that are not owned by owners that are sanctioned themselves. So it means that certain kind of quite well-renowned recyclers have been able to go to U.S. authorities. This is the vessel. This is the history of the vessel. These are the owners. Can we kind of buy this and get an exemption or a license to buy this vessel for recycling, and they've gotten yes. So the number of vessels here, we're talking kind of in the teens. So it's not material looking at the vast fleet of sanctioned vessels currently. But at least it's a start. So how that will evolve going forward, it's very difficult to say, but it's a positive movement at least.

Operator

We are now going to take our next question. And this one comes from [ Audrey Zhong ] from China Securities.

Unknown Analyst

This is [ Audrey Zhong ] from China Securities. Lars, my first question is on the recent VLCC sale. We know that you sold 2 VLCCs for about $270 million. I think this is [Technical Difficulty] your decision to sell the VLCC because given the current strong rate environment, how did you compare the sale price with the present value of the future cash flows from continuing to operate the 2 tankers? This is my first question.

Lars Barstad

Yes. No, it's -- again, excellent question. There were 2 kind of key analysis that we applied to the considerations. One was kind of what is the implied value of the assets that Frontline own. And as we're priced by the market at a multiple of almost -- well, at the time, it was north of 1.3x NAV. The implied value of the vessel was actually higher than what we achieved.

But the second one is -- and this is where it gets a little bit kind of not mathematical to put it that way. It goes a little bit on experience in this market. We are operating in one of the most volatile markets in the world, if not the most. That volatility tells you that nobody actually knows what's going to happen around the next turn. We looked at the assets. And for us to decline selling at that level, we had to believe that we were going to make almost $70,000 per day every day until that vessel was 20 years old or those vessels were 20 years old. If you look at kind of how our market has been moving historically, we thought that, that was a bold ask. So of course, it was the highest price achieved for that generation of ships at the time. And that was basically the analysis.

So basically, what we do is we look at what do we need to get a 15% return on equity, which is where Frontline wants it to be kind of in order to make an investment case. And that resulted in this kind of rate requirement. And how likely was it that, that rate requirement was going to be real. And we thought potentially not. Maybe for the next couple of years, but not for 9.5 years or -- sorry, 11.5 years or 11 years, whatever it was at the time. So that was basically the analysis. But you have a very good point. It was not an easy decision to make when you're standing in the middle of a market which at the time was earning for a VLCC around $100,000 per day. It's, of course, something that needs deep consideration.

Unknown Analyst

Great. That's very clear and very helpful. And my second question is on cash breakeven rates. I noticed that despite the reduction in financing margins, I think you did a very great job in decreasing your financing cost. But actually, the Suezmax cash breakeven point increased to [Technical Difficulty] exceeding the VLCC breakeven for the first time since 2021 based on our quarterly tracking. So does the $25,700 already reflect the benefit of the lower financing margins? If so, what other factors that drove the increase? And how should we expect the Suezmax cash breakeven to trend in the second half of 2026?

Inger Klemp

Sorry, I wasn't hearing everything you asked about, but I think you were referring to the Suezmax breakeven rate. Is that correct?

Unknown Analyst

Yes. Please allow me to repeat my question. Actually is why is the Suezmax cash breakeven higher than even VLCC cash breakeven rate in Q2?

Inger Klemp

Yes. The reason for that is that the dry dock component in the cash breakeven rate. For Q2, the cash breakeven rates are much higher than it was for the Q1 cash breakeven rates. And then in addition to that, in Q1, we had undrawn debt or an RCF, which was undrawn on one of the vessels, which is assumed to be drawn in the Q2 breakeven rate.

Unknown Analyst

Okay. Great. So can we expect that the Suezmax cash breakeven in Q3 and Q4 also have the trend like in Q2 because I think it's increasing the Suezmax cash breakeven.

Inger Klemp

I'm not sure I understood what you said now. What was the question again?

Unknown Analyst

Yes. Actually, in Q3 and Q4, what the Suezmax cash breakeven would be like since, I think, the Suezmax cash breakeven is increasing.

Inger Klemp

Sorry, these cash breakeven rates are for 12 months forward. So it is for 12 months forward from the end of June 2026. You add those 4 quarters to the end of June 2027. So this cash breakeven rate of $25,700 for Suezmax vessels are for the 12 months period going forward, including then the Q3, Q4, Q1 and Q2 of 2027. It's an average. So yes, and it is explained by what I just said that you have a dry dock of 7 vessels in that period, which we did not have in the previous cash breakeven rate, which we showed you for the end of the first quarter.

Operator

That was the last question for today. I will now hand the call back to Lars for closing remarks.

Lars Barstad

Thank you very much. And all of you, thank you for listening in. It's truly an exceptional market we are experiencing and also well into Q3. So looking forward to our call next quarter. Thank you very much.

Operator

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.