Frontline Ltd. (FRO) Earnings

Management highlights

### Overall Financial and Balance Sheet Position - Reported Q1 2026 is the most profitable quarter for Frontline since 2004, with Q2 2026 on track to deliver even stronger results. Total reported profit hit $559 million ($2.51 per share), while adjusted profit reached $344.9 million ($1.55 per share), a $114.5 million increase from Q4 2025 driven by higher time charter earnings. - The company holds a strong liquidity position with $945 million in total cash and available undrawn revolver capacity, with no meaningful debt maturities until 2030. Remaining newbuilding commitments total $925 million for 9 eco newbuildings from Hemen affiliates, with $737 million in newbuilding financing already secured. - The full 72-vessel fleet is 100% eco vessels, 64% scrubber-fitted, with an average age of 7.5 years, giving the company a modern, efficient fleet positioned for current high-rate market conditions. ### Market Fundamentals and Geopolitical Impact - Tightening tanker market fundamentals were already in place approximately one year before the February 2026 effective closure of the Strait of Hormuz. The closure caused major disruptions to Middle East Gulf oil flows, but global production shifts and trade pattern changes have offset most of the volume impact. - Following the closure, total net oil flow loss reached only 6.2 million barrels per day, as Saudi Arabia increased output via the Yanbu Red Sea pipeline, UAE expanded pipeline throughput to Fujairah, and non-Middle East producers raised total output by 3.3 million barrels per day. - Longer voyages from new supply sources have fully offset the volume shortfall in ton-mile terms, with total oil shipping demand remaining surprisingly robust. Distances oil travels are now back to pre-closure levels, and crude on water volumes are recovering rapidly. - Approximately 55 VLCCs are currently held idle and waiting east of Suez, contracted to industrial oil players (refiners, NOCs, oil majors) that hold them in reserve to access cargo immediately if the Strait of Hormuz reopens. This idle tonnage removes effective supply from the active market, supporting current high rates. ### Orderbook and Fleet Outlook - The current orderbook for Frontline's core vessel classes stands at 23.2% of the existing fleet, with most deliveries scheduled for 2028 and beyond. While order growth is accelerating into 2029 and 2030 delivery windows, net fleet growth remains manageable due to ongoing fleet aging: 45.5% of all current vessels aged 15 years or younger will turn 20 years old (the typical age for scrapping) within the next 5 years. - If U.S.-Iran negotiations result in the reimposition of sanctions on Iranian oil, 15-17% of the current global VLCC fleet (currently used to transport sanctioned Iranian crude) will become obsolete overnight, further tightening compliant tonnage supply and potentially triggering a large wave of scrapping of older, non-compliant vessels. - Shipyard capacity is materially lower than the 2010-2011 ordering peak, limiting the pace of new vessel additions to the global fleet even as ordering activity increases. Energy supply security has become a top priority for Asian importers, leading to permanent diversification of oil sourcing away from the Middle East to longer-haul sources such as West Africa, the U.S. Gulf, and Latin America, which supports sustained high ton-mile demand.

Guidance

- Based on TCE rates as of May 22, 2026, Frontline estimates annual cash generation potential of $1.5 billion (~$7 per share), equal to an 18% cash flow yield based on the current share price. - If spot rates increase 30% from current levels, annual cash generation potential would rise to approximately $2.1 billion ($9.51 per share); if spot rates fall 30%, cash generation would drop to ~$1 billion ($4.41 per share). - Management maintains that even after the Strait of Hormuz disruption, near-term market conditions remain strongly bullish for tankers, with the reopening scenario expected to be supportive of high rates due to inventory restocking demand and sustained higher ton-mile demand from supply diversification. Longer-term, the orderbook and scrapping dynamic are expected to keep the market balanced. - No formal full-year 2026 earnings guidance was revised or reaffirmed beyond the cash generation estimates based on current spot rates.

Segment performance

Frontline operates three tanker segments: VLCC, Suezmax, and LR2/Aframax. In Q1 2026, the company achieved an average time charter equivalent (TCE) of $103,500 per day for the VLCC fleet, $72,400 per day for the Suezmax fleet, and $50,700 per day for the LR2/Aframax fleet. As of the Q1 2026 reporting, the overall fleet comprises 33 VLCCs (44.6% of total fleet count), 21 Suezmax tankers (28.4% of total fleet count), and 18 LR2 tankers (24.3% of total fleet count). The company reports total profit of $559 million and adjusted profit of $344.9 million for Q1 2026, with total time charter earnings increasing to $536.5 million from $424.5 million in the prior quarter. Estimated 12-month average cash breakeven rates are $24,300 per day for VLCCs, $24,300 per day for Suezmaxes, and $23,600 per day for LR2s, for a fleet-wide average of $24,100 per day. Actual Q1 2026 operating expenses (including dry dock costs) were $11,300 per day for VLCCs, $9,100 per day for Suezmaxes, and $10,900 per day for LR2s, for a fleet average of ~$9,400 per day including dry dock, and $8,100 per day excluding dry dock.

Risks & headwinds

- Extreme volatility in geopolitical conditions around the Strait of Hormuz, with daily headline swings on potential opening or further escalation, creates uncertainty for trade flows and rate forecasting. - Opaque market activity, with many fixtures done via captive industrial fleets that are not reported publicly, makes it difficult to accurately measure actual supply and demand balance. - A permanent closure of the Strait of Hormuz would create downside risk for VLCC rates, though management has mitigated this risk by locking in time charters for ~30% of VLCC voyage days over the next 12 months. - Accelerated ordering activity for 2029 and 2030 delivery could create excess supply longer-term if scrapping volumes do not meet expectations. - A faster-than-expected energy transition away from oil, accelerated by the current Middle East energy security crisis, could reduce long-term demand for crude tankers over a 5+ year horizon.

Analyst Q&A

• Q: Why has VLCC fixture activity out of the U.S. Gulf and West Africa declined slightly from April to May despite holding very strong rates? /

  A: Management notes most fixture activity is not publicly visible, as oil traders first utilize their own captive fleets, whose fixtures are unreported. U.S. Gulf VLCC activity follows a monthly mini-cycle tied to arbitrage openings and crude price volatility: activity spikes for 1-1.5 weeks per month then fades as flow shifts between Aframaxes, Suezmaxes, and VLCCs based on trade dynamics. Headline volatility around the Strait of Hormuz also makes traders cautious to lock in fixed rates far in advance, leading to uneven fixture patterns.

• Q: Why do national oil companies hold 55 VLCCs on standby outside the Arabian Gulf instead of deploying them on alternative trades currently? /

  A: The primary motivation is holding a prompt option to move oil immediately if the Strait of Hormuz reopens. The first companies to move cargo after an opening can capture massive discounts on Iraqi and other Middle Eastern crude, worth up to $60 million per vessel, far exceeding the cost of holding idle tonnage. If vessels were deployed on alternative Atlantic trades, they would be unavailable for 70-90 days, forcing companies to secure tonnage from third parties at potentially exorbitant rates when the strait opens. Most of these vessels are locked into long-term time charters agreed at pre-boom rates, so the cost of holding the idle option is very manageable.

• Q: If ton-mile offsets and net VLCC supply loss are fairly modest after the Hormuz closure, why have rates risen to such unprecedented high levels? /

  A: The key unforeseen factor supporting extremely high rates is the large share of the VLCC fleet being held idle for strategic reasons by industrial players, rather than being available for commercial charter. While ton-mile growth has offset the volume loss and Saudi Arabia was able to ramp up Red Sea shipments faster than expected, the removal of ~55 idle VLCCs from the active supply pool has created a far tighter supply-demand balance than most market observers expected, even before the disruption.

• Q: How does Frontline manage the tail risk of a permanent, escalated closure of the Strait of Hormuz, and how does that change fleet or balance sheet strategy? /

  A: Management has actively increased time charter coverage for VLCCs, with ~30% of VLCC voyage days over the next 12 months now locked into 1-year time charters, up from prior lower coverage levels. While Frontline maintains its core strategy of providing investors with maximum spot market exposure, the company locks in coverage at current extremely high rates to protect against downside risk from a permanent closure and avoid financial distress if market conditions shift. This balanced approach preserves upside from a potential reopening while mitigating the low-probability tail risk of extended closure.