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Frontline Ltd (FRO 2.73%)
Q4 2018 Earnings Conference Call
Feb. 28, 2019, 9:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
See all our earnings call transcripts.
Prepared Remarks:
Operator
Good afternoon, ladies and gentlemen, and thank you for standing by, welcome to today's Q4 2018 Frontline Limited Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by question and answer session. (Operator Instructions) I must advise you that this conference is being recorded today, Thursday, 28th of February 2019.
Now, I am going to turn the conference over to your speaker today, Robert Macleod. Please go ahead.
Robert Hvide Macleod -- Director and Chief Executive Officer
Thank you very much and apologies everyone for the delayed start. But good morning and good afternoon. Thank you for dialing in to Frontline's fourth quarter earnings call. I will start by briefly going through the highlights of the quarter. Following up, Inger, will run us through the financials. We'll then look at the Q4 and Q1 spot earnings and going through some pretty exciting market slides. We'll also look at the risks going forward. The call will be concluded by taking your questions.
Let's get started and look at the Company highlights. Net income for the quarter was $25.4 million, adjusted for non-cash items, we made $26.4 million. The VLCC numbers were highly affected by ballast days toward the end of the quarter deferring revenue recognition into the first quarter of 2019. The TCE effect per day per VLCC is around $8,300. Q1 bookings are at a high level, 84% of the days are booked at $41,300, which includes deferred revenue recognition from the fourth quarter of 2018. I'll get back to earnings of Suezmaxes and Aframaxes later. Our largest shareholder continues their supports, the Hemen facility is extended to November 2020. We have also increased our ownership in Feen Marine Scrubbers to 28.9% and our planning for 2020 is on track. VLCC newbuilding Front Defender delivered in January. This brings Frontline's current order book down to one VLCC only, Front Discovery, which will be delivered in April.
With that I will hand the call to Inger, to take us through the financials in more detail.
Inger M. Klemp -- Chief Financial Officer, Frontline Management AS
Thanks Robert. And good morning and good afternoon, ladies and gentlemen. Let's turn to Slide 4 and 5 and look at the financial highlights and income statements. Frontline achieved total operating revenues net of voyage expenses of $122 million and an EBITDA, adjusted for certain non-cash items of $78 million in the fourth quarter. Frontline reported net income of $25.4 million, which is equivalent to $0.15 per share, and a net income adjusted for certain non-cash items of $26.3 million, also equivalent to $0.15 per share. The non-cash items this quarter consisted of $8.9 million gain on the termination of the lease Front Ariake and Front Falcon. We had a $0.2 million share results of an associated company, a $5.4 million unrealized loss on marketable securities and also a $4.7 million loss on derivatives.
The fourth quarter shows an improvement of $31 million against adjusted EBITDA of $47 million and an improvement of $34.8 million against adjusted net loss of $8.4 million in the third quarter of 2018. The improvement in net income in the quarter of $34.8 million is mainly explained by an increase in result on time charter basis of $33.1 million. This is due to the increase in reported TCE rate in the fourth quarter compared to the third quarter. However, our net income in the fourth quarter was impacted significantly by a higher number of ballast days toward the end of the quarter, especially for the VLCCs, which deferred revenue recognition into the first quarter of 2019. The Company is required to account for voyage revenues and voyage costs under the load-to-discharge method account -- according to ASC 606 under US GAAP. The total impact of this is that $15.8 million on net voyage revenues have been deferred into the first quarter, whereas $13.5 million relates to the VLCCs and $2.9 million relates to the Suezmax tankers.
For the LR2 tankers $0.6 million net worth costs have been deferred into the first quarter. I refer to Note 2 in our Unaudited Condensed Consolidated Financial Statements for more detail. The spot TCE estimates for the first quarter are $41,300, contracted for 84% of vessel days for VLCCs, $33,300 contracted for 77% of vessel days for the Suezmax tankers and $26,100 contracted for 73% of vessels days for the LR2 or the Aframax tankers. This includes the deferred revenue recognition from the fourth quarter of 2018 which I just went through. These spot estimates are provided using the load-to-discharge method of accounting as described in more detail in Note 2 to our Unaudited Condensed Consolidated Financial Statements.
The rates quoted are for days currently contracted, the actual rates to be earned in the first quarter 2019 will therefore depend on the number of additional days that we can contract. And of course, more importantly, the number of additional days that each vessel is laden. Therefore a higher number of ballast days at the end of the quarter will limit the amount of additional revenues to be booked based on accounting under ASC 606. The load-to-discharge method of accounting results in revenues being recognized over fewer days, but at a higher rate for those days. Over the life of a voyage there is no difference in the total revenues and costs to be recognized. And when expressing the TCE per day, the Company uses the total available days for the quarter and not just the number of days the vessel is laden.
Let us then take a look at the balance sheet on Slide 6. The changes to the balance sheet as of December 31, from September 30, mainly relate to a decrease in vessels of $25 million due to depreciation in the quarter, a decrease in vessels under capital leases by $46.8 million due to termination of the leases on Ariake and Falcon, an increase in other long-term assets of $7.5 million, mainly due to advances made on scrubber investments, a net decrease in debt with $25 million and also a decrease in obligations under capital leases with $59.96 million due to the termination of the leases on Front Ariake and Front Falcon. We also had an increase in equity of $26 million, representing the net income in the fourth quarter.
As of December, the 31st, Frontline has $158 million in cash and cash equivalents, including the undrawn amounts under our unsecured loan facilities, marketable securities and minimum cash requirements. Our remaining newbuilding CapEx requirements amounted to $114 million related to the two lost VLCC newbuildings and we had approximately $114.7 million in debt capacity under our newbuilding credit facilities. We had no near-term debt maturities. The first debt maturity is in November 2020 and our senior unsecured loan facility of up to $275 million matures. We have drawn down $186 million under this facility as of end of December, and following repayment of $15 million in January, we currently have drawn $171 million under this facility.
Then let's take a closer look at cash breakeven rates and OpEx on Slide 7. We estimate average cash cost breakeven rate for 2019 of approximately $24,400 per day for the VLCCs, $19,900 per day for the Suezmax tankers and $16,700 per day for the LR2 tankers. These rates are the all-in daily rates that our vessels must earn to cover budgeted operating costs on dry dock, estimated interest expenses, TC and bareboat hires, installments on loans and G&A expenses. The reason for that is breakeven rates are higher than in 2018, is that we have included dry dock costs for six VLCCs, four Suezmax tankers and one LR2 tanker in 2019. In the upper right-hand graph, we show Frontline VLCC cash breakeven rates along with average VLCC spot earnings in the period 2009 to 2019. We can see from the graph that Frontline's low cash breakeven rates offers a strong downside protection against the low rate environment and at the same time creates a great upside potential in the strengthening tanker markets.
Every $1,000 per day in (ph)achieve(/ph) rates in excess of our cash breakeven rates translates to approximately $19 million in incremental net income per year or $0.11 per share, which shows the high importance of maintaining those low cash breakeven rates. The operating expenses per day in the fourth quarter of 2018, were $7,600 for the VLCCs, $7,000 for the Suezmax tankers and $7,100 for LR2 tankers. We did not dry dock any vessel in the fourth quarter and one vessel is scheduled to dry dock in the first quarter of 2019.
With this I'll leave the word to Robert again.
Robert Hvide Macleod -- Director and Chief Executive Officer
Thanks Inger. Pretty exciting with the upside on the earnings.
Inger M. Klemp -- Chief Financial Officer, Frontline Management AS
Yeah.
Robert Hvide Macleod -- Director and Chief Executive Officer
$1,000 is over the breakeven is $90 million over the year. So hopefully, we'll keep some of that going forward.
Let's turn to Slide 8 please and have a quick look at the Q4 performance and the Q1 guidance. The spot earnings for the lease, we've already covered. We've made $26,100 in Q1 on the Suezmaxes. The Q1 bookings are strong, 77% at $33,300. Aframaxes made $18,700 in Q4 and they are also off to good start with 73% done at $26,100.
Let's moves to the next one, a very exciting slide, the spot market's recent behavior. The market pull backed as we enter Q1 due to OPEC cuts, accelerated fleet growth and seasonal factors. In recent weeks, the market has reversed course with US export volumes and VLCC rates, both doubling since January and showing a counter seasonal trend. Reports shown undersupplied oil market, inventories are falling and with rising refinery margins, more oil has (ph)captured (/ph) the markets increasing demand for shipping. This has created a strong pull on long-haul US crude. Exports in March look to be almost double, those in January.
The result is that ships are drawn directly to Atlantic from Asia, which in turn has left the Middle East ship availability tight and the market has therefore firmed significantly at an unusual time of year. The recent spike is very exciting and we read it as a sign that the current tanker fleet is well balanced. A lot of ship capacity will be taken out in Q2 and Q3 due to dockings with scrubber and ballast water delays. 2019 could well be a counter seasonal in multiple quarters and particularly strong in the second half. Our spot exposure, is at 97%, so we are well positioned to benefit.
Slide 10 please, OPEC cuts changed trading patterns. Forecast imply that demand growth will increasingly be geographically dislocated from incremental supply. The US production is expected to be the main incremental supply in the market, which should cause ton-mile demand to continue to increase at surplus barrels are transported to Asia. New investments in US export capacity are under way and will contribute to this dynamic going forward. In the meantime, supply disruptions which have been seen recently in Venezuela and in Iran will create further dislocation and volatility in the market.
Next one please, the VLCC order book. We are currently in one of the highest delivery years for VLCCs seen in recent times, and year-to-date 11 VLCCs have entered the market. There will be slippage toward the end of the year like we saw in 2018, but we still expect around six of these to deliver in 2019. To balance that, we have that what we would refer to as a survey pool of net 120 vessels, out of which many are expected to be recycled or converted over the same period. There will of course also be further orders placed for 2021 delivery onwards. An interesting fact, the average age of the current VLCC fleet is at 16 year high at 9.5 years, up from 7.5 years in 2012.
Let's go to the last slide, the summary. Oil demand is strong and new supply continues to come from the US and is a major factor in setting in the spot market, while driving ton-miles. As we've said, we think the vessel supply side is manageable. Frontline has taken steps to position the Company ahead of the implementation of the new IMO emission regulations. We believe our 2020 preparation will lead to increased cash flow generation and allow us to return incremental value to our shareholders. But on the flip side, there will be a high pace of vessel deliveries this year and (ph)scrubber(/ph) will slow down if the market continues to be strong, although IMO 2020 will make older vessels even less economical to operate. Global growth could slow and trade wars could continue to disrupt. Loss supply from Iran and Venezuela could also be a negative, pushing the oil price up and demand for vessels down. Newbuilding orders have slowed, but this could of course change.
To conclude, we expect the market to remain volatile, but continue to trend higher as the fleet prepares for newbuild regulations and oil volumes return. Crude oil tanker demand will also receive a significant boost, as refineries increase crude import fronts to meet incremental demand for compliant fuels prior to the implementation of IMO 2020. Although, there are always risks related to slowing the global demand, multiple positive market drivers should result in a strong year-over-year growth in earnings.
With that, I'd like to turn over to questions please.
Questions and Answers:
Operator
(Operator Instructions) We have had some questions come through. Your first question comes from the line of Jon Chappell from Evercore. Please, go ahead. Your line is now open.
Jonathan B. Chappell -- Evercore ISI -- Analyst
Thank you. Good afternoon. I wanted to say, I really appreciate the transparency on the revenue recognition. I think that went a long way in explaining kind of the 4Q and the 1Q volatility. So, thank you for providing that.
Inger M. Klemp -- Chief Financial Officer, Frontline Management AS
Welcome.
Jonathan B. Chappell -- Evercore ISI -- Analyst
The one big question I had was on the dividend. The Frontline of yesteryear with a fourth-quarter profit and a big 1Q outlook would have paid a pretty sizable dividend and it was kind of noteworthy that there was not only no dividend paid for the fourth quarter, but really no mention of strategy for 2019, other than saying kind of managing the balance sheet. So, do you think that's prudent, managing the balance sheet given where you've come from, but how do you kind of think about the dividend, especially given your optimistic outlook for 2019?
Inger M. Klemp -- Chief Financial Officer, Frontline Management AS
Yeah. I think, as you say, we definitely have a positive result in the fourth quarter, but you have to remember that we have -- just less the latter quarters, where we have had losses. And at the same time when we experienced losses in these different quarters, we also had to draw on this facility that we have with our main shareholder. So, we think it's prudent now to start to download the debt a bit, especially this more expensive debt that we have with our main shareholder and then we have with the debt related to our vessels. So, but going forward, I think this is something we have to review next quarter. And with the outlook, which seems quite positive for 2019, I think, we will review what to do also how we should proportion this out going forward. But, we definitely would like to have a healthy balance sheet going forward and I think it's also in the interest of our shareholders that we actually are downloading a bit on our debt situation.
Jonathan B. Chappell -- Evercore ISI -- Analyst
Yeah. I agree with that Inger. But, just to be clear, is there any restrictions from the Hemen facility that keep you from paying a dividend or limit the amount you can pay or should we think about you want to get Hemen fully repaid before you kind of go back to the previous policies, or it's just kind of going to be a quarter-to-quarter review?
Robert Hvide Macleod -- Director and Chief Executive Officer
I think, it's fair to say here that the Board will obviously look at this quarter-by-quarter. But, I think it's -- the Board will look at reintroducing the dividend sooner rather than later. And there is no restrictions on the facility.
Jonathan B. Chappell -- Evercore ISI -- Analyst
Okay. Thank you. My second question is just on this scrubber schedule for this year. You said there is only about $1 million left to pay in 2019, but that doesn't include installation costs. So if we think about the all-in cash outlay associated with scrubbers, how much cash will be going out in 2019 for those 20, or I guess the 18 that kind of the newbuilds. And also, thanks for the schedule on dry docks, six VLs for Suez. What's the off-hire time associated with those?
Inger M. Klemp -- Chief Financial Officer, Frontline Management AS
Yeah. I think, you are referring to the note that we are stating that we have CapEx related to the scrubbers of $15.8 million or $16.8 million, of Suez, was it? Is that what you are referring to?
Jonathan B. Chappell -- Evercore ISI -- Analyst
Yeah.
Inger M. Klemp -- Chief Financial Officer, Frontline Management AS
Yeah. Okay. Yeah. And we also say that's not including in the installation costs. And in the installation cost we have included, I guess, in our -- of the total cost we have included in our cash forecasts for 2019, I believe it is close to $47 million for everything in a way.
Jonathan B. Chappell -- Evercore ISI -- Analyst
Okay, that's helpful. And the off-hire time for each dry docking?
Inger M. Klemp -- Chief Financial Officer, Frontline Management AS
5, 10 days, I would say for the scrubber installations, I mean in addition to ordinary dry docking.
Jonathan B. Chappell -- Evercore ISI -- Analyst
Okay, perfect. Thanks, Inger. Thanks, Robert.
Operator
Thank you. Your next question comes from the line of Randy Giveans from Jefferies. Please, go ahead. Your line is now open.
Randy Giveans -- Jefferies -- Analyst
Hey, how is it going?
Robert Hvide Macleod -- Director and Chief Executive Officer
Oh, good. Thanks. (multiple speakers)
Randy Giveans -- Jefferies -- Analyst
Great. So, few quick questions from me. So, I see you continue to kind of grow your Feen Marine ownership. Is there kind of a -- do you want own a 100% of that being a possibility and how much has it cost you to get that kind of current 29% kind of ownership?
Robert Hvide Macleod -- Director and Chief Executive Officer
So, I think we will stay where we are in terms of ownership. We -- there is no desire from our side to go much up from that. So, we have no desire to take over the company. We're going to focus on running ships. But, it's a strategically -- given IMO 2020, we quite liked the flexibility that the investment gives us.
Randy Giveans -- Jefferies -- Analyst
Got it. And then the cost for that 29%?
Robert Hvide Macleod -- Director and Chief Executive Officer
That we haven't disclosed that out and we're not going to comment on the costs in this call.
Randy Giveans -- Jefferies -- Analyst
AIright. And then just looking at the time charter market. I think with the surge in Vs, you are starting to see those kind of pick up a little as well. I know you mentioned kind of your current spot exposure, but at the same time with time charter rates pretty well above your cash breakeven levels. Are there thoughts of kind of securing some tonnage on time charters here in the next couple of weeks or months?
Robert Hvide Macleod -- Director and Chief Executive Officer
Yeah. That's a very good question. We are looking at the time charter market all the time. It's finally come up to healthier levels, as you say, well above the cash breakeven. We did two Suezmaxes recently for one year period locking in some. At the same time, the spot is increasing and we expect to put time charter rates to also keep improving here as we move toward 2020. So, there's no immediate rush to secure more, but we are monitoring it closely, and as we did in the last strong market in 2015, we went from very low coverage up to 30% and we will certainly look at taking some coverage this time around. But there is no sort of clear strategy as to what percentage to look for, but it is the right thing to do for a certain number of ships.
Randy Giveans -- Jefferies -- Analyst
Okay. That's fair. And I guess the last question on the scrubber side. All 20 of those to be installed this year and any plans for kind of further in 2020?
Robert Hvide Macleod -- Director and Chief Executive Officer
The majority is this year. Some are going into next year. And just to add it, all of them are up in conjunction with the planned drydocks. So we've not done any such thing outside of drydocks yet. It's something that we keep monitoring and obviously being a pioneer of a production company will then give us flexibility to get these things on short notice.
Randy Giveans -- Jefferies -- Analyst
Sure. That makes sense. Alright. That's it from me. Thanks again.
Robert Hvide Macleod -- Director and Chief Executive Officer
Thank you.
Operator
Thank you. Your next question comes from the line of Michael Webber from Wells Fargo. Please, go ahead. Your line is now open.
Michael Webber -- Wells Fargo Securities -- Analyst
Hey, good morning guys. How are you?
Inger M. Klemp -- Chief Financial Officer, Frontline Management AS
We're fine. Thank you. What about you?
Michael Webber -- Wells Fargo Securities -- Analyst
Good. I wanted to move back on scrubbers for a second, in FMSI, I know the facility that's really the primary driver being able to kind of expand their capabilities in the time, is scheduled to come online in February. I haven't been able to find any updates on it, maybe I missed it, but did that happen and if not, give a sense on how and when then that will happen?
Robert Hvide Macleod -- Director and Chief Executive Officer
So the new facility in, Batam just across from Singapore, I visited myself here in January. So we are currently in large part moving across the new facility and we will be operational there during the month of March. So it's happening very soon.
Michael Webber -- Wells Fargo Securities -- Analyst
Okay. So slide the month, but sounds like it's pretty close?
Robert Hvide Macleod -- Director and Chief Executive Officer
Yeah. The aim was end of Feb and it's slipping in to March. So, no big change. And for us we've put most of our drydockings to capital in Singapore. So, we basically have our scrubber manufacturing just across from Singapore. So it's very easy access.
Michael Webber -- Wells Fargo Securities -- Analyst
Yes, OK. That's helpful. And then just as in the context of positioning yourselves for 2020. We've seen some competitors and then maybe some potential suppliers that are moving in advance to secure fuel or kind of get more dynamic in terms of kind of hedging their access into maybe a bit of uncertainty around availability, (ph)obviously, (/ph) wide outcomes there in terms of availability. How do you guys think about positioning Frontline for that over the next nine to 12 months?
Robert Hvide Macleod -- Director and Chief Executive Officer
In terms of the spread, we've not hedged anything. And so we will -- my personal opinion is that it's more likely to go wider than narrow. I think there's going to be lots of high sulfur around pushing prices down. So I am not concerned about the availability. Our ships obviously trade to the large ports. So we will be bunkering the main ports as well where the availability is the easiest. If you have smaller ships going certain places in Africa or Asia it's going to be more difficult, but we don't. So we are focusing basically on getting the scrubbers installed, we're focusing on more operational matters, getting the bunker tanks ready, well in time. So that we don't get any knots of surprises as we reach 1st of January. So hedging, which in my opinion is more speculative at this time and in any case, we are living and learning, we are being flexible at it.
Michael Webber -- Wells Fargo Securities -- Analyst
Okay. No, that's alright. Appreciate that. And then finally just on asset values in general, just given rates of, in general lease up a little bit from Q4 out, but we've seen asset values run in the other direction. When you look at the dynamics right now between day rates, your equities and asset values, decent disconnects, do you think asset values have gotten ahead of themselves or do you think eventually cash flows rise and port levels are there now. And I'd say that was in the context of obviously, the knee-jerk reaction of OK, well equities and rates are going to rise before asset values where they are now. If they don't we pull back a little bit into a catalyst that you guys believe and it could present an opportunity.
So I'm just, curious how you think about that dynamic right now?
Robert Hvide Macleod -- Director and Chief Executive Officer
I mean, the asset values have not gone ahead themselves. I think that they got more to go I think. And I think the issue is more that the liquidity remains very low. So there is not much being done, but there are opportunities out there. And obviously, we keep looking at those things. And I think, I don't see the risk of asset values dropping much, that's very high.
Michael Webber -- Wells Fargo Securities -- Analyst
Okay. That's all I had. I appreciate that guys. Thanks.
Robert Hvide Macleod -- Director and Chief Executive Officer
Thank you.
Operator
Thank you. Your next question comes from the line of Fotis Giannakoulis from Morgan Stanley. Please go ahead. Your line is now open.
Fotis Giannakoulis -- Morgan Stanley -- Analyst
Yes, hi, and thank you. Robert, we have seen the rates for VLCCs to be much stronger than a lot of people expected despite the OPEC cuts. And as you mentioned, this is primarily attributed to US crude exports. Can you give us a number of how much is the capacity of the port capacity for US crude exports? There is a new high last week. I'm wondering if there are any bottlenecks from the shipping side, such as the timing to load a vessel or the congestion that they can be a bottleneck to this ramp up?
Robert Hvide Macleod -- Director and Chief Executive Officer
I think we've -- look you have the exports developed from January to March, I think March, will be a good tester on eventual bottlenecks. The investment is obviously huge and the things are improving very quickly. So it doesn't look to be the case, but I think March will be a test. And I think the US will pass the test. And then obviously going into 2020, there is going to be more places to load these and things will -- capacity will increase further. So it could well be, I don't have a clear answer to you. But I think the risk of major leases is not there where you have dropped the export capabilities.
Fotis Giannakoulis -- Morgan Stanley -- Analyst
Thank you, Robert. And we have seen with exception of January that we had a few new orders, generally largely in newbuilding activity especially seems asset prices have increased compared to where they were about a year ago. In your discussion with the shipyards given what is going on in the drybulk market, are there any concerns about potentially shipyards adjusting the newbuilding prices since they will have a less demand for drybulk orders?
Robert Hvide Macleod -- Director and Chief Executive Officer
That is very good question Fortis. And I think the answer is on my opinion is that other segments in drybulk are still placing orders and you got constellation going on in Korea, which will make them stronger. So if you look at the overall activity and interest for newbuildings, it remains very low. And, to me, that's a very good sign, looking at the market now normally, in shipping, we've so used to bad times, that if we can have a choice between having ship delivering two months or in two years, we go for two years. But now with the outlook and so the general outlook at the market then people sort of agree that we are getting into stronger period. So now you prefer to get a ship delivering earlier. And there are some ships who sell, that will deliver within the next year and interest even there is low. So I think there is a fair chance here that newbuilding ordering will stay low and the focus will be on resales. And obviously, that's something I'm also hoping.
Fotis Giannakoulis -- Morgan Stanley -- Analyst
Okay. Thank you, Robert. One last question about IMO 2020 we've been focusing a lot about the movements of products. I'm trying to understand if you think there is going to be any increase in the movements of fuel oil so far VLCCs, they do very rarely cargos of fuel oil. With oversupply of fuel oil, the potential of Middle East absorbing more fuel oil, how much that would be the potential demand for the crude tanker sector? And especially, if you have any discussions with the Middle Eastern clients, whether they are considering of switching some of the crude consumption for power generation into fuel oil? How quickly this can come? And how many ships or what percentage of the demand can absorb for the VLCC market?
Robert Hvide Macleod -- Director and Chief Executive Officer
First of all, to take the first part, you mentioned products briefly, then (inaudible) products, it's obviously it's difficult to say, but ultimately 2020 is probably going to lead to more trading, more movements and should be a positive trigger for sure. So we have our '18 owned LR2s, we've been through a very strong period on the Aframax market, but we did keep most of the ships clean in anticipation for stronger clean markets and until two weeks ago, we were actually outperforming on the clean side. So that could be exciting here going forward.
In terms of the fuel in the Middle East and how the switch will be. I think fuel will be, I don't think it will be, there will be more fuel produced as we need a bigger crude output through the refinery set to meet these demands. So there's going to be a flush of fuel. So power generation using more fuel looks pretty exciting and how that was going to affect those out of this call or others let us see right, but that's likely to happen.
Another thing on the fuel, there will be a lot of extra fuel. So I think the older ships that I mentioned earlier in the presentation, I think there's a fair chance that some will go on to fuel storage, in places like Singapore as we've seen in the past to find places to store this.
Fotis Giannakoulis -- Morgan Stanley -- Analyst
Thank you very much, Robert.
Robert Hvide Macleod -- Director and Chief Executive Officer
Thank you Fotis.
Operator
Thank you. Your next question comes from the line of Magnus Fyhr from Seaport Global. Please go ahead. Your line is now open.
Magnus Fyhr -- Seaport Global -- Analyst
Just one question, you mentioned, operationally position yourself for the IMO 2020. With the market being so volatile this year and refinery turnarounds coming up and more ships going into drydocking. How do you commercially position the fleet near term to optimize your rates for the ships?
Robert Hvide Macleod -- Director and Chief Executive Officer
We are going to have to force ourselves to take -- even if the market's strong, we are going to force ourselves to take ships out of service to get them prepared, because we can't afford being late in this. So this will happen this year during the summer, we will stick to that plan, and how strong the market is. And that investments, I think will be repaid in 2020. And I don't -- we will certainly not be only ones making this investment in Q2 and Q3 of this year, most likely, ballast water coming in September, so a lot of ships have to do apply to that. So there's going to be a lot of ships going out in Q2 and Q3. And that's also why I think that Q2 and Q3, which is normally quite weak seasonally could be upside down this year. And, yes, this is very, very exciting. What's happened in last two, three weeks excites me. And I think we've got volatility, but we've got some spikes, we don't normally see during the year coming up because of this.
Magnus Fyhr -- Seaport Global -- Analyst
Yes. And one wildcard we haven't talked about is the Iranian storage. Any color there on -- is it early to tell with the sanctions coming into effect again?
Robert Hvide Macleod -- Director and Chief Executive Officer
I don't have the accurate data on that Magnus. All I can say is that, I'd be surprised if you don't see the same thing happening as was the case last time is that gradually, they all go on storage because they don't have the land-based storage available.
Magnus Fyhr -- Seaport Global -- Analyst
Okay. And then just one last question if I may, on the LR2s, demand has been very strong seasonally, any insights there of locking up ships or are you going to continue to play them spot?
Robert Hvide Macleod -- Director and Chief Executive Officer
That is a segment we are looking at doing a few charters on and we did the same in 2015 and that was basically what saved us when the markets went down. So, we've got low cash breakevens there between '15 and '16. So we've got a potential head to lock in some decent returns. So we will do that, probably not that many units but some will.
Magnus Fyhr -- Seaport Global -- Analyst
And where do you peg that market right now for one or two year charter?
Robert Hvide Macleod -- Director and Chief Executive Officer
It's in the range of (ph)22.5 to 25(/ph) for one, two, three year charters.
Magnus Fyhr -- Seaport Global -- Analyst
Okay, very good, Robert, thank you.
Robert Hvide Macleod -- Director and Chief Executive Officer
Thank you.
Operator
Thank you. And your final question comes from the line of Greg Lewis from BTIG. Please go ahead. Your line is now open.
Greg Lewis -- BTIG -- Analyst
Yes, thank you and good afternoon. Robert, just you kind of talked a little bit about your outlook for asset prices. Just as we think about that in Frontline what's sort of your view right now on potential acquisitions of on the water tonnage? Is that something the Company is looking at or is there availability?
Robert Hvide Macleod -- Director and Chief Executive Officer
Yes, we are all looking at it. There are a few for sale, but you'd be surprised how few it actually is, but there are some opportunities out there. And, yes, as I keep saying on these calls, we keep looking and you will see us do stuff.
Greg Lewis -- BTIG -- Analyst
Okay, great. And then just one more from me, clearly you guys have your scrubber investment. I imagine you're following the overall tanker fleet that is taking scrubbers closely, have you done any work around how much utilization impact we could see in the market from scrubber -- from vessels being out of the market that have scrubbers installed in '19 and in '20?
Robert Hvide Macleod -- Director and Chief Executive Officer
It's a great question. And yes, we've done some studies on it. And we've seen our own, and we've seen external -- we have our guesses, but we don't put a figure on it. What we do think is that Q2 and Q3 of 2019 we'll see a lot of supply being taken out and you can have a market that's very seasonal, abnormal. So exciting, but I don't have -- I haven't put a figure on it.
Greg Lewis -- BTIG -- Analyst
Perfect. Hey, thank you very much for the time.
Robert Hvide Macleod -- Director and Chief Executive Officer
Thank you Greg.
Operator
There are no further questions at this time, please continue.
Robert Hvide Macleod -- Director and Chief Executive Officer
Okay, thank you very much. I would like to thank everyone at Frontline for their great efforts and thank everyone for calling into this presentation. All the best.
Operator
That does conclude our conference for today. Thank you for participating. You may all now disconnect.
Duration: 39 minutes
Call participants:
Robert Hvide Macleod -- Director and Chief Executive Officer
Inger M. Klemp -- Chief Financial Officer, Frontline Management AS
Jonathan B. Chappell -- Evercore ISI -- Analyst
Randy Giveans -- Jefferies -- Analyst
Michael Webber -- Wells Fargo Securities -- Analyst
Fotis Giannakoulis -- Morgan Stanley -- Analyst
Magnus Fyhr -- Seaport Global -- Analyst
Greg Lewis -- BTIG -- Analyst
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