Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Frontline (NYSE:FRO)
Q3 2020 Earnings Call
Nov 25, 2020, 3:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Q3 2020 Frontline Ltd. earnings conference call. [Operator instructions] We are also taking questions from the web. I must advise you that this conference is being recorded today.

I'd now like to hand the conference over to your speaker, Mr. Lars Barstad. Please go ahead, sir.

Lars Barstad -- Chief Executive Officer

Good morning, and good afternoon. Welcome to Frontline's third-quarter earnings call. This is my first call in the hot seat, and I'm both excited and honored to serve our company in this capacity. Frontline's long-term strategies are well cemented by the board, and we're running a very professional organization that has easily adapted to this management transition.

This has been a volatile quarter and an extraordinary year to date. I'm tempted to bring in black swans, but they seem to have become common to the shipping industry. The global COVID-19 pandemic has affected us all. And even though we still need to endure the situation a bit longer, there is no glimmer of hope in the horizon.

Let's have a look at the highlights on Slide 3. Frontline came into Q3 2020 on a high note. But as the quarter progressed, freight rates started to correct. We still landed the quarter at good returns on a low to discharge basis, earning $49,200 per day on our VLCCs, $25,100 per day on our Suezmaxes and $12,800 per day on our LR2s/Aframaxes.

This yielded a net income of $57.1 million or $0.29 per diluted share. Our adjusted net income came in at $56.4 million, rounded to $0.29 per diluted share. We are very happy to report that Frontline has entered into three term loan facilities of up to $485.2 million, Inger who is with me here today, will elaborate more on our financing activities later in this presentation. So far, in the fourth quarter, we have booked 74% of our available VLCC days at $22,600 per day.

61% of our available Suezmax days at $12,600 per day and 65% of our LR2/Aframax days at $13,800 per day. The booked earnings are a reflection of the challenges this market faces. And although we want to be upbeat on the future, there are uncertainties going forward. Frontline has, therefore, decided to refrain from paying dividend this quarter to preserve the company's cash position.

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

Inger Klemp -- Chief Financial Officer

Thanks, Lars, and good morning and good afternoon, ladies and gentlemen. Let's then turn to Slide 4 and look at the income statement. Frontline achieved total operating revenues, less overage expenses of $178 million, in the third quarter and also an adjusted EBITDA of $108 million in the third quarter. Frontline reported a net income of $57 million or $0.29 per share and adjusted net income of $56.4 million or also $0.29 per share in the third quarter.

The adjusted net income this quarter decreased about $160 million compared to the previous quarter, and that was primarily driven by a decrease in our time charter as earnings due to the lower reported TCE rates that Lars went through in the third quarter, but also more of hired days in this quarter due to dry dock of four vessels. We also recorded a $13.9 million increase in operating expenses. That was mainly due to increase in dry docking costs of $4.3 million, also increase in repairs and maintenance of $2.1 million, and we also had $4.8 million additional crew costs due to COVID-19. In addition, we also had a reduction of $12.4 million as a result of that three in the second quarter.

So [Technical difficulty] Let's then take a look at Slide 5. We have completed loan facilities in a total amount of approximately $920 million during 2020. Whereas $725 million after that was done to refinance four existing loan facilities, which were due in December 2020 and the first half of 2021. But also, we have completed two financings of $106 million to finance new vessels.

All these loan facilities were done at very attractive terms, with LIBOR plus 190 basis points or even better, maintaining our competitive cost structure. In November 2020, the company entered into three new term loan facilities in a total amount of $485 million, where two of these facilities were to refinance two existing term loan facilities maturing in the second quarter of 2021. And then the third facility was in the amount of $133 million to partially finance the four LR2 tankers under construction. The details on the refinancing of the two facilities were, first, that we had one senior secured term loan facility done with a strong banking group, consisting of the largest logo shipping banks in the amount of up to $250.7 million to refinance the $466.5 million facility, which maturing in April 2021.

The new facility maturing in May 2025 and has an amortization profile of 18 years. This facility was fully drawn down in November 2020 and $236.8 million of the refinance facility has been recorded as long-term debt as of September 30, 2020. Further, we entered into one senior secure term loan facility with ING and Credit Suisse in an amount of up to $100.8 million to refinance the $109.2 million facility which matured in June 2021. This new facility matures now in November 2025 and has an amortization profile of 17 years.

The facility was also fully drawn down in November 2020 and $78.6 million of the refinanced facility has been recorded as long-term debt as of September 30, 2020. The slide shows debt maturities prior to refinancing in the gray columns and following the refinancing in the blue column. You will notice that following the refinancing, we had no material debt maturities until 2023. And the debt maturities from 2025 onwards have increased substantially.

Lastly, we also entered into a senior secured term loan facility with CEXIM and Sinosure in an amount of $133.7 million to partially finance the remaining costs of $142.3 million for the four LR2 tankers under construction. The facility will have a tender of 12 years and amortization profile of 17 years. And following that, the newbuilding program is fully funded. Let's then take a look at the balance sheet on Slide 6.

The main happenings in the third quarter affecting the balance sheet were that we entered into the two new loan facilities, which I went through to refinance the two term loan facilities with total balloon payments of $324.4 million, which were due in April 2021 and June 2021. This has led to that short-term debt and current portion of long-term debt, decreased with $311 million and long-term debt increased with $293 million. Further, we paid $97 million in dividends, and we earned adjusted net income of $6.4 billion. At the end of September 30, 2020, Frontline has $432 million in cash and cash equivalent including the undrawn amounts under our senior secured loan facility, marketable securities and minimum cash requirements.

Then let's then take a closer look at the cash breakeven rate and the OPEX on Slide 7. We estimate that the average cash cost breakeven rate for the fourth quarter of 2020 will be approximately $21,900 per day for the VLCCs, $20,400 per day for the Suezmax tankers and $15,700 per day for the LR2 tankers. The fleet average estimate is about $19,500 per day. These rates are the all-in daily rates that our vessels must earn to cover the budgeted operating costs and dry dock, the estimated interest expenses, TCE and bareboat hire, installments on loans, and G&A expenses.

The Suezmax tanker cash cost breakeven rate in the fourth-quarter 2020 is impacted by that we would dry dock four Suezmax tankers in the fourth quarter. We will also dry dock one LR2 tanker in the Fort quarter. As already discussed, the Q3 OPEX was affected by increase in dry docking costs, increase in repair and maintenance and additional crew costs due to COVID-19. As usual, we would like to draw your attention to Frontline cash flow generation potential.

In the graph, on the right-hand side of the slide, we have shown incremental cash flow after the debt service per share assuming $10,000, $20,000, $30,000 or $40,000 per day in achieved rates in excess of our cash breakeven rate. These numbers include vessels on time charter out, and we are looking at a period of 365 days from October 1, 2020. As an example, with a fleet average cash cost per even rate of $19,500 per day and assuming $30,000 on top of the average rate TCE, then the benefit would be $49,500 per day. And Frontline generated cash growth per share at the debt service of $3.42.

With this, I leave the word to Lars again.

Lars Barstad -- Chief Executive Officer

Thank you, Inger. So let's move over to Slide 8 and recap the third quarter in the tanker market. So global oil demand bottomed in May. And in June, we were already in recovery and demand surpassed supply amid deep cuts by OPEC and other key producers.

The oil market switched from inventory build to inventory draws. This can be seen on the slide at the bottom left with the yellow bars. Subsequently, OPEC+ increased production slightly, but kept the cap significantly below Jan 20 levels, and the draw cycle continues. When in draw mode, it's normally the expensive barrel that rose first, and this is typically floating storage.

The majority of OPEC cuts have been geographically centered around the Middle East Gulf. This has led to recovering economies, in particularly in Asia, sourcing their oil from further afar. This incurs longer turn miles. In the end, this has abled the VLCC market as these vessels offer the best economies of scale.

We also saw continued demand for product storage during the quarter and specifically jet fuel storage, keeping LR2 markets relatively firm. This development is well-reflected in our results for the quarter. Let's move to the next slide, Slide 9, and look at the fleet and order books. Tankers have continued to enter the market during the quarter, but many have been engaged directly from yard in product storage.

This has limited the impact on crude spot markets. There has been reports of significant delivery backlog due to the COVID-19-related disruption, but this backlog seems to have been cleared. There are recent speculations of mammoth orders in clips of 5 and 10 vessels being placed in Asia. These are yet to be confirmed and not a part of this asset.

However, as the chart indicates, there is room for fleet growth in both 2022 and more so in 2023, assuming 20 old ships leave the competitive spot market and oil demand develops on trend in that time horizon. One of the big X factors for shipping going forward is obviously propulsion technology. Frontline follows these developments closely. Leveraging on our extensive business platform, but there is still a way to go to reach any conclusions.

Let's move to Slide 10, where we try to explain one of this market's mysteries. We have a record number of vessels literally in all asset bases, reaching or passing the 20-year mark. Average recycling age for tankers is very close to this age, sometimes depending on the underlying freight rates. We are now in the market with relatively high volumes of inventory still in addition to a high amount of sanctioned oil volume.

This seemed to have supported the demand for tankers in the tail end of their effective lifespan. In the chart below, we illustrate this by comparing the average price achieved on tonnage transacted, age close to 20 and the reported price achieved for researching. The disconnect is pronounced and likely explains the muted recycling activity. Selling for alternative use is currently the preferred option for the owners.

I think it's important to note that for the competitive spot market where we operate, we are under strict scrutiny from wetting policies and these vessels play an insignificant part of those ounces. Let's move on to Frontline and our approach to ESG. Efficient sales and transparent operations have been Frontline's core values for years. Efficiency in order to save costs but also fuel costs.

Safe in order to safeguard our seafarers, the environment and our physical assets. Transparent in order for the investing community like yourselves to easily understand our business model. What we have found, as we have familiarized ourselves with the relevant ESG framework for our industry the last couple of years, is that for us, it's more about how we structure our communication on policies and routines we already have in place rather than enforcing completely new routines or altering the way we conduct ourselves. A central part of our business model is for technical management to be clustered or shared, if you wish, with other listed companies we are familiar with.

In this, we gain economies of scale as we share knowledge and practices for more than 230 vessels. This collaboration gives us an impressive leverage to shape and influence the standards we expect to be met, both on social aspects and on governance. But we also share synergies when it comes to applying technology to optimize performance, both in the traditional manner, absent in speed and consumption, but also with respect to our environmental footprint. Frontline is, although potentially a bit under communicated, very well-positioned to comply with the stricter environmental, social and governance framework the shipping industry has to get comfortable with going forward.

So let's move to Slide 12 and the tanker market outlook. Increased oil supply is now key in order for the tanker market to balance. We were shielded for a period as tankers were employed by storage. Now we're dependent on volumes to come to the market and normal trading patterns resuming.

The demand for tankers is still capped by the OPEC cuts, but we find it extremely encouraging to see oil prices perform strongly as the volumes offered increased significantly, particularly by the Libyan exports that resumed in October. This in isolation suggest oil demand might actually be firmer than the market in general aspects. Looking at the benchmark Brent oil curve, we see same tightness expressed in a dramatic move from contango or carry, if you like, to a near flattening of the curve. This signals inventory draws to accelerate and oil markets potentially finding a balance at an earlier stage.

It's obviously a bit early to call, but just to explain how these mechanisms work. If we are drawing in a territory of 3 million to 4 million barrels per day from inventories now, that's the volume needed from producers once inventory levels normalize, which, in turn, can be translated into increased tanker demand. Finally, let me sum up on Slide 13. So Frontline is financially strong.

We have no material debt maturities until 2023. The company is very well-positioned toward ESG-related expectations. Despite extended regional lockdowns, oil demand continues to recover. Crude oil price action indicates a change in oil market sentiment, and we expect freight market volatility to increase going forward.

Thank you. And then we can move on to the Q&A.

Questions & Answers:


Operator

Thank you. [Operator instructions] And your first question comes from the line of Randy Giveans from Jefferies. Please ask your question.

Randy Giveans -- Jefferies -- Analyst

Howdy team Frontline, and congrats again on your promotion, Lars.

Lars Barstad -- Chief Executive Officer

Thank you very much, Randy.

Randy Giveans -- Jefferies -- Analyst

So first question around the dividend. You bought it back last year, paid a $0.10 dividend despite a loss following 3Q '19 results. You increased this to 40% -- or sorry, 70% net income following the first quarter, fell in the second quarter and now you cut it to 0 despite a $0.29 gain. So I guess, why has the dividend payment bounced around so much over the last year? And what will cause you to reintroduce the dividend? Clearly, it's not just positive net income.

Lars Barstad -- Chief Executive Officer

No. You're absolutely right. It's not only positive net income. We work in an extremely volatile market and we also normally have quite a good visibility on our earnings going forward.

For Q3, the earnings were good, but our visibility or when we look into Q4, it doesn't look too great. And we are in the middle of a global pandemic and the uncertainties are quite great going forward. So we decided to keep the cash but we'll obviously return paying dividends the minute we see that the market has stabilized and potentially is ready to return to levels where we see that suited.

Randy Giveans -- Jefferies -- Analyst

Got it. OK. So more of just a subjective outlook for the market regardless of the --

Lars Barstad -- Chief Executive Officer

Our dividend policy stated in such a manner that we like to use our discretion when we deem it needed. And in this particular case, we found that to be prudent.

Randy Giveans -- Jefferies -- Analyst

Got it. All right. And then I guess one more question for your quarter-to-date rates. The VLCCs, Suezmaxes down from the third quarter for the fourth quarter, which makes sense.

However, your LR2 rates are ticking up, they're higher. So maybe what caused this? And how many of your LR2 product tankers are operating in the crude trade?

Lars Barstad -- Chief Executive Officer

Well, we have eight of our LR2s are operating in the crude trade. We have 10 operating in the clean, of which one is on time charter. The estimated kind of charter charge return for Q4 is probably this instance, more colored by the returns we've seen on the clean side.

Randy Giveans -- Jefferies -- Analyst

OK. And then do you have an outlook for crude versus products here in the next six to 12 months, which kind of sector do you see most -- or more attractive? I know I think you mentioned neither are very attractive.

Lars Barstad -- Chief Executive Officer

Well, it's a very good question. The thing is that we've come through seven quarters where kind of the crude part of that equation has outperformed the clean trade. It's only the last quarter and a half where the clean product tankers have actually outperformed significantly. So it's really difficult to call.

The Aframaxes are obviously now being penalized by the fact that Russia has cut quite severely together with OPEC. And that's hurt the North Sea barrel of the Baltic barrels coming out of Russia. I think I would wait to make that call until the phase flows have normalized.

Randy Giveans -- Jefferies -- Analyst

Got it. All right. Well, I'll let you go. Thank you so much.

Operator

Thank you. And the next question comes from the line of Chris Tsung from Webber Research. Please go ahead ask your question.

Chris Tsung -- Webber Research & Advisory -- Analyst

Hi, Lars. Hi, Inger. How are you?

Lars Barstad -- Chief Executive Officer

Hi. We're good. Thank you.

Chris Tsung -- Webber Research & Advisory -- Analyst

Great. Good to hear. I wanted to ask about the decision to sell SeaTeam. Could you expand on that a little bit more? And would you guys also look to divest other JVs like position in Clean Marine?

Lars Barstad -- Chief Executive Officer

So first of all, to take the SeaTeam to look at that, kind of SeaTeam has been a really kind of good company for us to have more or less in-house for a period of time. It's obviously not core business. Our business model is outsourcing services like SeaTeam we're offering. But it's obviously given us great knowledge.

And it's also made us understand the market or the technical management market quite well. Us deciding to divest from that was more related to an opportunity that came rather than something that we strategically wanted to do quickly. So an opportunity arises, and we found a solution where OSM will actually continue to run SeaTeam almost in its original form and take care of our vessels, kind of, that are under management with them, with the same mindset that they were already inside SeaTeam. So it's more like kind of keeping to our strategies or keeping to our original strategy.

With regards to Clean Marine, Clean marine is an investment we're still holding. We are not kind of an active owner in that. We were more like having a listening post. So I think I will leave that.

The scrubber market or ETFC market is a little bit dormant, as probably understand. But the company is still working, and we're just basically looking at it more as a passive investment.

Chris Tsung -- Webber Research & Advisory -- Analyst

OK. Yes. That makes sense. And just looking at the -- not so much guidance with fixtures to date in Q4.

The other twos are a little bit hard and Suezmax hasn't typically happened this way. And I guess, how much of it is driven by the number of clean tankers versus dirty? Or I guess, what factors are allowing the Suezmaxes? Is it trade below LR2 or LR2 to trade above the Suezmaxes for Q4?

Lars Barstad -- Chief Executive Officer

Well, as I indicated, when I summed up Q3, Q3 was a bit of an atypical quarter when it comes to how freight rates develop. Because in a normal market, Suezmaxes will perform a little bit kind of below VLCCs. And then luxury Afras will follow suit a little bit below that. But this year or this quarter, Suezmaxes have actually underperformed VLCCs by more than 50%.

And this is a market kind of look, it's not -- for us, in particular. With the OPEC cuts, we've seen that the longer-term miles have been prioritized or grown. And this has put the VLCCs in a much greater position due to their economies of scale. And this has penalized Suezmaxes in particular.

So I think that the rate is a reflection of how severe the situation has been in the Suezmax market where kind of little opportunity to trade during the quarter and quite kind of harshly hit the markets. The LR2s have, throughout the quarter, outperformed literally all the other segments apart from the VLCCs. And this is obviously due to their ability to store clean products in particular to that.

Chris Tsung -- Webber Research & Advisory -- Analyst

OK. So storage clean trade. OK. And just one last quick question on dry docking.

I know in your prepared remarks, you talked about the dry dock schedule for Suez and one for LR2 in Q4. Can you tell me the number of Suezmaxes in Q4 that are currently dry docked?

Lars Barstad -- Chief Executive Officer

The number in Q4?

Inger Klemp -- Chief Financial Officer

Yes. That's four Suezmaxes.

Lars Barstad -- Chief Executive Officer

Yes. Four.

Inger Klemp -- Chief Financial Officer

And one LR2.

Lars Barstad -- Chief Executive Officer

And one LR2. Yes.

Chris Tsung -- Webber Research & Advisory -- Analyst

Great. OK. Four Suez, one LR2 in Q4. Thanks, guys.

Have a good day.

Operator

Thank you. And your next question comes from the line of Jon Chappell from Evercore ISI. Please ask your question.

Jon Chappell -- Evercore ISI -- Analyst

Thank you. Good afternoon, Lars and Inger.

Lars Barstad -- Chief Executive Officer

Good afternoon, Jon.

Jon Chappell -- Evercore ISI -- Analyst

Inger, first question for you, just quickly on the dividend. So completely prudent, given your fourth-quarter rates to date, but you guys are also able to refinance a lot of debt at very good terms at a very difficult time in the market. Were there any restrictions on dividend payouts or payout ratios as part of those new facilities that may have played a role in the decision to suspend this quarter?

Inger Klemp -- Chief Financial Officer

No. We don't have any dividend resections in our loan facility. So that's made any difference.

Jon Chappell -- Evercore ISI -- Analyst

Great. OK. And then, Lars, you're joining at an interesting time, and Frontline has a legacy of being aggressive when others can't be. So you're retaining cash through no dividend.

You've done a great job shoring up the balance sheet. But you've mentioned the uncertainty, and obviously, the pandemic. Asset values dropping pretty aggressively. How do you kind of view 2021 in your role and in Frontline's role in the industry as far as acquiring assets, chartering in assets, just adding more leverage when others are just worried about survival?

Lars Barstad -- Chief Executive Officer

Well, as you said, it's in our kind of DNA to be aggressive when others can't. We also have a very strong shareholder in our backs. So it's obviously -- we're looking -- it's obviously something we're very excited looking forward. Kind of right now, I think the uncertainties are a little bit too great, to be quite honest.

Although we are a bit, there are some risks kind of looking into the next couple of quarters. We think opportunities will probably arise as we churn and we have these levels, particularly on the freight side. And I think people will find that the Frontline DNA hasn't really changed, even if I'm in the hot seat to pull it up by.

Jon Chappell -- Evercore ISI -- Analyst

OK. I appreciate it. Thanks, Lars. Thanks, Inger.

Lars Barstad -- Chief Executive Officer

Thank you.

Operator

Thank you. And your next question comes from the line of John Reardon [Inaudible]. Please ask your question.

John Reardon -- Independent Investor

Hi. Thanks for taking my call. Two things. One, you mentioned the unwind from the contango storage situation.

Could you tell us what you think the percentage of that has occurred? And then secondly, Libya has gone from basically not exporting much of anything to, I read the other day, it's over 1 million barrels a day. Is that providing some support for -- rate-wise for the Suezmax market in the Eastern Mediterranean?

Lars Barstad -- Chief Executive Officer

Thank you. Two really great questions. Firstly, there's the floating storage. On my -- in our presentation on Slide 8, we have some data there from ClipperData or Clipper Data.

The way I look at or we look at storage is we look at vessel storing for an extended period of time. So we've put the bar at 21 days. And those levels peaked north of 100 million barrels. Now we're down to 60 million barrels.

So there is a 40% decrease. How much oil when kind of that is finished, it's difficult to tell because there's also something about the structure of not only the crude curve, but also of the market itself. As I also think I mentioned, we have like a record amount of sanctioned barrels or sanctioned production in the world, which probably calls for a bit more floating inventory or inventory than we normally would observe. It's on its way down, and I think we have at least taken off 40% to maybe even 50% of the floating storage.

With regards to Libya, Libya has been really exciting and quite surprising actually. So they've managed to ramp up. And I think the last number sites was up to -- they've been able to add 1.2 million barrels per day. This has indeed made it far more interesting to be the Suezmax charter than there has been for the last couple of months.

So we do see a lot more cargos appearing in the market. We also see opportunities arising. A lot of these barrels or have been for a while now actually be going east. And that is like a perfect fit for the Suezmax size of vessels.

So, yes, it has supported the market in Mediterranean significantly.

John Reardon -- Independent Investor

OK. Thank you very much.

Operator

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

Greg Lewis -- BTIG -- Analyst

Yes. Thank you, and good afternoon, and then, Lars, congrats on the position. I guess I just had a kind of a broad question. It was kind of talked about, people focused on the dividend, rightfully so.

I guess I'll ask it differently. As I look at Frontline, and the company looks like it trades on -- depending on what valuation metric. I know you don't like to talk about any OTA, but we could look at like something like more Wall Street, like EV to EBITDA. And the companies at a premium and the company has been able to leverage that premium to grow and be opportunistic over time.

So just kind of curious, what do you think drives that premium?

Lars Barstad -- Chief Executive Officer

So what drives our relative pricing to our pads, is that --

Greg Lewis -- BTIG -- Analyst

Correct. So, yes, like, if you wanted to go out and buy a company, I mean, it's good to be at a premium if you want to do it. And so I'm just kind of curious how you think about that because it definitely gives you opportunities. So just kind of curious how you think about that?

Lars Barstad -- Chief Executive Officer

Well, I think there are many, many factors that decide on our pricing. Some are kind of maybe not in our making. We're a preferred stock, our liquidity is high and so forth. We also have extremely low cash breakeven levels.

We have a relatively high leverage, which gives you relatively quickly bang for the buck whenever the market moves. And historically, we have proven to be quite rewarding toward our shareholders. I know we've probably said this every quarter, at least since I joined Frontline in 2015. But when you invest in frontline, you invest together with our main shareholder, you're not kind of a sole investor in a big corporation.

And his history for being interested in your terms on the dollar is well-known. So I think that's part of it, I would assume, but it's a difficult number to break down.

Greg Lewis -- BTIG -- Analyst

OK. Great. And then just as I think about that, as you -- as the company is out there, and clearly, you kind of laid out the way to move forward and that hey, the market is not good now, but there's reasons to be constructive in the out years. Is the company -- I mean, in realizing you have a pretty attractive fleet right now, good age, big.

Should we be thinking -- are there going to be opportunities to come -- is there any M&A opportunities do you think that could develop over the next six to 12 months? Or it's kind of been all the same players for the last five-plus years, and you don't really see any potential for consolidation?

Lars Barstad -- Chief Executive Officer

There is always potential for consolidation, but there is always then, again, a question of price and opportunity, of course. The markets have actually consolidated, but maybe not in the way that investors would want to do. And that's more like in bigger pools are being built and kind of trading entities are growing and so forth. So the amount of kind of sole owners trading three or four ships has maybe not reduced, but at least, their tonnes have been consolidated in a way.

With regards to M&A, as you know and I know that there is always kind of the usual opportunities or suspects or whatever you'd like to call them. We are constantly monitoring them. And we're always kind of in the market to look at opportunities, but maybe not actually in this instant looking at how the market is performing right now.

Greg Lewis -- BTIG -- Analyst

OK. Hey. Thank you very much. Have a nice day.

Operator

Thank you. And the next question comes from the Randy Giveans from Jefferies. Please ask your question.

Randy Giveans -- Jefferies -- Analyst

Back for more with two quick modeling questions. First, for the loan facilities, were done at LIBOR plus 190 basis points, so certainly pretty impressive there, Inger. But following those recent refis, is now the plan to maybe repay the remaining $60 million on the Hemen facility? And then also with the new recent refis in place, what is your weighted average interest expense and debt amort schedule through 2021 in terms of core repayments?

Inger Klemp -- Chief Financial Officer

So with respect to the -- did you ask about the ordinary installments? Was that the question?

Randy Giveans -- Jefferies -- Analyst

Yes.

Inger Klemp -- Chief Financial Officer

OK. In 2021, the ordinary installment based on the current loan facilities we have is approximately $160 million a year, evenly split between the quarters. And it will be some slightly increase in these ordinary installments in 2021 as we then seek delivery of the four LR2 tankers and draw down on the new CEXIM/Sinosure facility, which we talked through earlier in the presentation. And your other question was with respect to the Sterna facility? Was that the question?

Randy Giveans -- Jefferies -- Analyst

Yes. The $60 million remaining on the Hemen facility?

Inger Klemp -- Chief Financial Officer

We do have an agreement there in place saying that it matures in May 2021. So we plan to follow that agreement and then we pay in May.

Randy Giveans -- Jefferies -- Analyst

Got it. All right. And then for the total weighted average interest expense, I see your interest expense came down pretty meaningfully from the second quarter. Just trying to see where that runs up to in the third -- in the fourth quarter.

Inger Klemp -- Chief Financial Officer

OK. In the third quarter, I think the average cost was around 2.3%. And I think now in the fourth quarter, like in OER, but around the same level.

Randy Giveans -- Jefferies -- Analyst

Got it. All right. And then one more last modeling question before we can all get to Thanksgiving, I guess, here in the states. For the operating expenses, they had a huge tick up in the third quarter.

I know you said most of that was due to some dry docking, some onetime crewing costs. Just trying to get a sense for a good run rate there in the fourth quarter in 2021?

Inger Klemp -- Chief Financial Officer

Yes. As you said, it was a lot of warrant here in the third quarter. However, we have pointed to in the press release that we will also have a kind of one-off in the fourth quarter with respect to this crew cost in relation to COVID-19 of $1.5 million. However, that is, of course, down from this quarter, which was $4.8 million.

We also have stated that we will have five vessels dry docked in the fourth quarter. So I don't think you can expect that the cost will come any down from the third quarter with respect to dry docking in the fourth quarter. But rather, it will probably be a bit higher. But otherwise, I don't think we will have any extraordinary items in Q4.

With respect to in 2021, I don't foresee that to be any extraordinary anyway. All the exception of subject I have to make is, of course, the development of the COVID-19 pandemic in a way. And we can't really foresee that, but it seems active activity is coming in place and everything would be pretty normal there as well. So it shouldn't be any cost related to crew changes and that sort of thing going into 2021.

Randy Giveans -- Jefferies -- Analyst

Sure. Let's hope so. That's sounds good. Well, thanks so much.

Have a good day.

Lars Barstad -- Chief Executive Officer

Thank you.

Operator

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

George Burmann -- CL Securities -- Analyst

Good morning, gentlemen. Good afternoon. Thanks for taking my call. I've got a few questions.

Number one, you used to be predominantly in the VLCC and Suezmax space. Recently, in the last few years, you moved into the LR2/Aframax area. Can you comment on the reasoning behind that, number one?

Lars Barstad -- Chief Executive Officer

Yes. Kind of over the years, Frontline fleet has diversified kind of into three key or core segments. The two Aframax market or rather the LR2/Aframax market is like the VLCC of the clean trade. That has been for a long period of time been like development globally, where refining capacity has been growing rapidly in the Middle East and also in Asia, at the cost of refining capacity in North America and in Northwest Europe.

Obviously, in that case, stumbled a bit on the fracking revolution, meaning that U.S. refineries ended up having a relatively cheap feedstock, and we're able to maintain kind of run rates and margins for a prolonged period of time. So -- but the investment initially was out of the displacement between supply and demand on the product side. This is becoming kind of increasingly current again with India claiming to double their refining capacity within a relatively short time.

And we see the tremendous growth of refining capacity in China, meaning that China could become a significant exporter of petroleum products. At the same time, as we see now refineries in Europe have struggled and are kind of, to a larger extent, shutting down. So that was -- that kind of is and was the key strategy behind what we experienced, obviously, was that the clean markets didn't perform as expected, and the LR2s got engaged in the dirty trade, so drawing a little bit below half the fleet into the dirty trade. But these ships can be cleaned up and can move back to the LR2 market, yes.

George Burmann -- CL Securities -- Analyst

OK. Great. Next question, you did a pretty big deal last year with Trafigura. I believe it was for 10 Suezmax tankers, pretty new ones, 2019 build.

Are there still several under time charter that you time charter back to Trafigura over and at what rates are those?

Lars Barstad -- Chief Executive Officer

There's still five of them on time charter back to Trafigura with a profit-sharing agreement. And that said, the level is $28,400 per day.

George Burmann -- CL Securities -- Analyst

So they are good earners for you at the moment, even though we don't profit here with them. Right?

Lars Barstad -- Chief Executive Officer

Absolutely.

George Burmann -- CL Securities -- Analyst

OK. Then concerning scrapping, you mentioned in your initial remarks that it looks like with the current rate environment that are many, many companies, if they still transport, they would do so at huge losses. Do you see any openings in the scrapyards recently that have enabled companies to scrap? And then you made a remark, other than scrapping, what would some company do in buying a 20, 25-year-old VLCC or Suezmax tanker?

Lars Barstad -- Chief Executive Officer

Well, firstly on the scrapping. As far as I understand, I believe -- well, we like to call it recycling. As far as I understand, the recycling plans were also heavily affected by the global pandemic, meaning that they had to shut down. There is an increasing activity in the recycling market right now, and we see more and more vessels being sold for recycling but not necessarily in our asset classes to be that way.

There are a couple of Aframaxes that have gone, but very few deals Suezmax reported. And as I mentioned in my presentation, there is a disconnect between the price these vintage vessels are able to achieve for not necessarily trading, but for storage and other activities, than what the recycling company is willing to pay you for the steel. So with regards to what these tankers are used for, I think I would be a little bit kind of cautious to speculate, but obviously, there is oil that is transported kind of outside of the normal spot market. And there is, as I mentioned, there are quite a large amount of sanctioned barrels in the world right now, and these need somewhere to be stored.

George Burmann -- CL Securities -- Analyst

Got it. And then lastly, maybe you can comment again, I read that you're divesting your Ship Management division and you look to book about a $7 million gain here in the fourth quarter on the sale. What are the reasoning behind divesting this division, essentially taking your in-house ship management to an outsourced version. Is that cost-efficient for you, more cost efficient?

Lars Barstad -- Chief Executive Officer

Well, let me explain a little bit on our model. So we do have in-house technical managers, but we do outsource the crewing, and effectively, the day-to-day handling of the vessels. So it means that we have an organization in-house, a technical management department, a relatively large one actually that oversee third-party technical managers. And SeaTeam could be looked upon a third-party technical manager.

So indirectly, we were owning a company that we normally just outsource to build that way, and this maybe explains my comment about it not being kind of a core business. And divesting it was basically due to the fact that OSM came in and offered us an opportunity to continue to run kind of the company -- or the company will continue to be run in very much the same manner and to the same expectations as we have when it was directly owned by us. And we obviously buy the services of that company going forward, just like any of the other third-party technical lanches that we employ.

George Burmann -- CL Securities -- Analyst

OK. Great. One last one, if I may. What is your average interest rate on the debt you're absorbing at this point in time? You mentioned that you had a very, very good debt facility there with a very good interest rate and with rates basically worldwide close to zero.

I'm wondering what kind of an advantage is that for your company at the moment? And how long are those rates locked in for?

Lars Barstad -- Chief Executive Officer

I'll let Inger answer that question. So I answer that question.

Inger Klemp -- Chief Financial Officer

The new facilities, which we have put in place now, we went through with respect to the tender of those facilities earlier in the call. So that was locked in the margin was locked in for 5 years on those facilities. And obviously, we have also shown our, let's say, debt maturity profile in the presentation. So you can see how this is going to be mature going forward in different loan facilities.

So the average rate that we are, let's say, having on a balance today is the 190 basis points in margin and LIBOR on top of that, which is the very low level now. The three-month LIBOR is around 30 basis points to 25 basis points in that area. That is what we are looking at. And in addition to that, of course, we have this turnout facility, which we talked about a bit earlier in the presentation, where we have rate of 6.25%, which we pay on that $60 million.

But that is a very small part of our total loan portfolio, so it doesn't really mean so much for the average in a way.

George Burmann -- CL Securities -- Analyst

So if LIBOR rates rise, your interest rates would -- your interest rate costs would also go up a little?

Inger Klemp -- Chief Financial Officer

Yes. It will. We do have interest rate swaps in place as well for $560 million on a certain bit higher level than the 25 or 30 basis points, but even though very competitive. So we are not, let's say, totally exposed to raise in LIBOR rates, but to a certain extent, yes.

George Burmann -- CL Securities -- Analyst

Yes. And then maybe one quick last one. Concerning scrubbers, is your entire fleet now outfitted with scrubbers where necessary?

Lars Barstad -- Chief Executive Officer

No. We have about two-thirds of our fleet is fitted with scrubbers as it is right now. We kind of slowed down the pace of scrubber installing with the demissioning kind of scrubber margin, to put it that way, the spread between high and low sulfur fuel. Not to say that we could easily reinitiate that program in the future.

George Burmann -- CL Securities -- Analyst

Do you expect -- I've recently heard reports about slow steaming. Would that be a positive effect on day rates and tanker demand?

Lars Barstad -- Chief Executive Officer

It could be. I'm not sure what context you kind of you're thinking about her. But first of all, during the laden leg, when we are imbalanced, we can many times decide our own speeds. And in this earnings environment, we will slow down as much as we can to be quite honest.

But there is also a general discussion around when we measure our carbon footprint how slow speeding could play a role in order for the tanker fleet to comply with the goals of IMO going forward. But this is still kind of a bit up in the air. And I must admit, we haven't really looked deep into that as of yet.

George Burmann -- CL Securities -- Analyst

OK. Great. Thanks very much for your time here.

Lars Barstad -- Chief Executive Officer

Thank you.

Inger Klemp -- Chief Financial Officer

Thank you.

Operator

Thank you. [Operator instructions] And there are no further questions at this time. Please continue.

Lars Barstad -- Chief Executive Officer

OK. Then I just wish to say thank you very much for this call, and thank you for listening. Happy Thanksgiving to the ones joining us from this state and stay safe. Thank you.

Operator

[Operator signoff]

Duration: 58 minutes

Call participants:

Lars Barstad -- Chief Executive Officer

Inger Klemp -- Chief Financial Officer

Randy Giveans -- Jefferies -- Analyst

Chris Tsung -- Webber Research & Advisory -- Analyst

Jon Chappell -- Evercore ISI -- Analyst

John Reardon -- Independent Investor

Greg Lewis -- BTIG -- Analyst

George Burmann -- CL Securities -- Analyst

More FRO analysis

All earnings call transcripts