FRONTLINE LTD.
SECOND QUARTER AND SIX MONTHS 2012 RESULTS
Highlights
* Frontline reports a net loss, excluding vessel impairment losses,
attributable to the Company of $11.2 million for the second quarter of
2012, equivalent to a loss per share of $0.14.
* Frontline reports a net loss, excluding vessel impairment losses,
attributable to the Company of $4.0 million for the six months ended June
30, 2012, equivalent to a loss per share of $0.05.
* Frontline records vessel impairment losses of $13.1 million in the second
quarter of 2012, equivalent to a loss per share of $0.17.
* Frontline will not pay a dividend for the second quarter of 2012.
* Frontline terminated the long term charter party with Ship Finance
International Limited ("Ship Finance") for the OBO carrier Front Rider in
July.
* In August, Frontline agreed to terminate the long term charter party with
Ship Finance for the OBO carrier Front Climber.
* Frontline subscribed for 3,546,000 shares in a private placement by
Frontline 2012 Ltd. of 56 million new ordinary shares.
* The chartered-in VLCC Hampstead was redelivered by Frontline on April
22, 2012.
Second Quarter and Six Months 2012 Results
The Board of Frontline Ltd. (the "Company" or "Frontline") announces a net loss,
excluding impairment losses, attributable to the Company of $11.2 million in the
second quarter, equivalent to a loss per share of $0.14, compared with net
income of $7.2 million for the first quarter, equivalent to earnings per share
of $0.09. The net loss, excluding impairment losses, attributable to the Company
in the second quarter includes a gain on sale of assets and amortization of
deferred gains of $5.1 million, which includes an aggregate deferred gain of
$3.8 million relating to the sale and leasebacks of DHT Eagle (ex Front Eagle)
and Gulf Eyadah (ex Front Shanghai). The net income attributable to the Company
in the first quarter includes a gain on sale of assets and amortization of
deferred gains of $11.0 million, which includes a gain of $9.4 million on the
termination of the charter party for the single hull VLCC, Titan Orion (ex Front
Duke), an aggregate deferred gain of $3.8 million relating to the sale and
leasebacks of DHT Eagle and Gulf Eyadah and a loss of $2.2 million on the sale
of the double hull Suezmax tanker, Front Alfa. The net income attributable to
the Company in the first quarter also includes a gain on the purchase of the
Company's convertible bonds of $4.6 million, which has been recorded in other
non-operating income.
The Company has recorded a vessel impairment loss of $13.1 million in the three
and six month periods ended June 30, 2012, equivalent to a loss per share of
$0.17. This loss relates to three OBO vessels - Front Rider ($4.9 million),
Front Climber ($4.2 million) and Front Driver ($4.0 million). The losses
relating to Front Rider and Front Climber are the expected losses on the
termination of the long term charter parties in July and September,
respectively. Impairment losses are taken when events or changes in
circumstances occur that cause the Company to believe that future cash flows for
an individual vessel will be less than its carrying value and not fully
recoverable. In such instances an impairment charge is recognized if the
estimate of the undiscounted cash flows expected to result from the use of the
vessel and its eventual disposition is less than the vessel's carrying amount.
The average daily time charter equivalents ("TCEs") earned in the spot and
period market in the second quarter by the Company's VLCCs, Suezmax tankers and
Suezmax OBO carriers were $31,000, $16,200 and $28,100, respectively, compared
with $25,600, $19,500 and $37,800, respectively, in the preceding quarter. The
spot earnings for the Company's double hull VLCCs and Suezmax vessels were
$31,500 and $16,200, respectively, compared with $25,400 and $19,500,
respectively, in the preceding quarter. The Orion Suezmax pool had spot earnings
of $17,400 compared with $19,200 in the first quarter. The Company's double hull
VLCCs excluding the spot index time charter vessels had spot earnings of $31,700
in the second quarter compared with $27,400 in the first quarter.
Profit share expense in the first quarter related to the amended charter party
agreements with Ship Finance and the amended charter party agreements for four
leased vessels following the restructuring of the Company in December 2011. The
profit share expense is calculated on a year-to-date basis and the results in
the second quarter resulted in a claw back. The cash sweep expense relates to
the amended charter parties with Ship Finance and the amended charter parties
for four leased vessels and is based on the difference between the renegotiated
rates and the actual market rate up to the original contract rates.
Ship operating expenses increased by $5.9 million compared with the preceding
quarter due to an increase in dry docking costs of $7.3 million (five vessels
were dry docked compared with no vessels in the preceding quarter), which was
partially offset by a decrease in running costs.
Charter hire expenses decreased by $2.0 million compared with the preceding
quarter primarily as a result of redelivery of the chartered-in VLCC Hampstead
on April 22, 2012.
Interest expense, net of capitalized interest, was $23.9 million in the second
quarter of which $11.5 million relates to the Company's subsidiary Independent
Tankers Corporation Limited ("ITCL").
Frontline announces a net loss, excluding impairment losses, attributable to the
Company of $4.0 million for the six months ended June 30, 2012, equivalent to a
loss per share of $0.05. The average daily TCEs earned in the spot and period
market in the six months ended June 30, 2012 by the Company's VLCCs, Suezmax
tankers and Suezmax OBO carriers were $28,200, $18,000, and $33,100,
respectively, compared with $27,400, $16,500 and $34,000, respectively, in the
six months ended June 30, 2011. The spot earnings for the Company's double hull
VLCCs and Suezmax vessels were $28,300 and $18,000, respectively, in the six
months ended June 30, 2012. The Orion Suezmax pool had spot earnings of $18,400
per day and the Company's double hull VLCCs excluding the spot index time
charter vessels had spot earnings of $29,900 per day, respectively, in the six
months ended June 30, 2012.
As of June 30, 2012, the Company had total cash and cash equivalents of $177.1
million and restricted cash of $89.2 million. Restricted cash includes $87.0
million relating to deposits in ITCL.
The Company estimates average total cash cost breakeven rates for the remainder
of 2012 on a TCE basis for VLCCs and Suezmax tankers of approximately $23,900
and $17,600, respectively.
Fleet Development
The chartered-in VLCC Hampstead was redelivered to the owners on April
22, 2012.
On June 4, 2012, the Company announced that it had agreed with Ship Finance to
terminate the long term charter party for the OBO carrier Front Rider and that
Ship Finance had simultaneously sold the vessel. The charter party terminated
July 22, 2012. The Company paid a compensation payment to Ship Finance of $0.4
million for the early termination of the charter. The transaction will reduce
the Company's obligations under capital leases by $2.4 million and the Company
recorded an impairment loss of $4.9 million in the second quarter.
On August 24, 2012, the Company announced that it had agreed with Ship Finance
to terminate the long term charter party for the OBO carrier Front Climber and
that Ship Finance had simultaneously sold the vessel. The charter party is
expected to terminate in late September 2012. The Company will make a
compensation payment to Ship Finance of approximately $0.6 million for the early
termination of the charter. The transaction will reduce the Company's
obligations under capital leases by $1.7 million and the Company recorded an
impairment loss of $4.2 million in the second quarter.
Newbuilding Program
As of June 30, 2012, the Company's newbuilding program comprised two Suezmax
tankers, which constitute a contractual cost of $124.9 million. Installments of
$12.5 million have been made and the remaining installments to be paid as of
June 30, 2012, amount to $112.4 million with expected payments of $25.0 million
in 2012 and $87.4 million in 2013.
Corporate
On May 29, 2012, the Company announced that it has been allocated 3,546,000
shares in a private placement in Frontline 2012 Ltd. of 56 million new ordinary
shares at a subscription price of $3.75 per share. Following the private
placement, the Company has an ownership of 7.9% in Frontline 2012 Ltd.
The Board of Directors has decided not to declare a dividend for the second
quarter of 2012.
77,858,502 ordinary shares were outstanding as of June 30, 2012, and the
weighted average number of shares outstanding for the quarter was 77,858,502.
The Market
The market rate for a VLCC trading on a standard 'TD3' voyage between the
Arabian Gulf and Japan in the second quarter of 2012 was WS 55, representing a
decrease of approximately WS 1 point from the first quarter of 2012 and a
decrease of approximately WS 3 points from the second quarter of 2011. Present
market indications are approximately negative $3,000 per day in the third
quarter of 2012.
The market rate for a Suezmax trading on a standard 'TD5' voyage between West
Africa and Philadelphia in the second quarter of 2012 was WS 72.9, representing
a decrease of approximately WS 9.3 points from the first quarter of 2012 and an
increase of WS 3.8 points from the second quarter of 2011. Current market
indications are approximately $10,000 per day in the third quarter of 2012.
Bunkers at Fujairah averaged $662/mt in the second quarter of 2012 compared to
$730/mt in the first quarter of 2012. Bunker prices varied between a low of
$663/mt on June 22( Â )and a high of $739/mt at the beginning of the quarter.
The International Energy Agency's ("IEA") August 2012 report stated an OPEC oil
production, including Iraq, of 31.4 million barrels per day (mb/d) in June and
July 2012. This was an increase of 55 kb/d compared to the first quarter of
2012.
The IEA estimates that world oil demand averaged 88.8 mb/d in the second quarter
of 2012, which is a decrease of 600,000 barrels compared to previous quarter and
the IEA estimates that world oil demand will average approximately 89.6 mb/d in
2012, representing an increase of 0.3 percent or 0.3 mb/d from 2011. 2013 demand
is expected to be 90.5 mb/d with non-OECD demand exceeding OECD, a trend that is
unlikely to be reversed.
The VLCC fleet totalled 610 vessels at the end of the second quarter of 2012, up
from 598 vessels at the end of the previous quarter. 12 VLCCs were delivered
during the quarter, none removed. The order book counted 95 vessels at the end
of the second quarter, down from 111 orders from the previous quarter. The
current order book represents approximately 16 percent of the VLCC fleet.
According to Fearnleys, the single hull fleet currently stands unchanged at 23
vessels.
The Suezmax fleet counts 468 vessels at the end of the second quarter, up from
451 vessels at the end of the previous quarter. 17 vessels were delivered during
the quarter whilst none were removed. The order book counted 79 vessels at the
end of the second quarter, down from 96 vessels at the end of the previous
quarter. No new orders were placed during the quarter and the current order book
now represents 17 percent of the total fleet. According to Fearnleys, the single
hull fleet stands unchanged at nine vessels.
Strategy and Outlook
Following the restructuring completed in December 2011, the cash break even
rates for the Company were substantially reduced for the period 2012- 2015,
creating a downside protection for the Company.
As part of the restructuring, the Company obtained agreements with its major
counterparties to reduce the gross charter payment commitments under existing
chartering arrangements. Frontline will, however, compensate charter
counterparties with 100 percent of any difference between the renegotiated rates
and the actual market rate up to the original contract rates. Some of the
counterparties will receive some additional compensation for earnings achieved
above original contract rates. The TCEs earned in the second quarter of 2012
were above the renegotiated rates and Frontline recorded cash sweep expense of
$17.8 million in the quarter. The main part of this relates to the amended
charter parties with Ship Finance.
The Board continues to see a challenging supply / demand situation for the
tanker market as a consequence of the combined VLCC and Suezmax fleet increasing
by approximately 98 percent between 2004 and 2012 without a similar increase in
demand. Frontline will remain cautious in this market environment and focus its
resources on the present activities until a clearer sign of recovery can be seen
in the tanker market.
Based on results achieved so far in the quarter and the current outlook the
Board expects the operating result in the third quarter to be significantly
worse than in the second quarter.
The full report is available for download in the link enclosed.
The Board of Directors
Frontline Ltd.
Hamilton, Bermuda
August 28, 2012
Questions should be directed to:
Jens Martin Jensen: Chief Executive Officer, Frontline Management AS
+47 23 11 40 99
Inger M. Klemp: Chief Financial Officer, Frontline Management AS
+47 23 11 40 76
Forward Looking Statements
This press release contains forward looking statements. These statements are
based upon various assumptions, many of which are based, in turn, upon further
assumptions, including Frontline management's examination of historical
operating trends. Although Frontline believes that these assumptions were
reasonable when made, because assumptions are inherently subject to significant
uncertainties and contingencies which are difficult or impossible to predict and
are beyond its control, Frontline cannot give assurance that it will achieve or
accomplish these expectations, beliefs or intentions.
Important factors that, in the Company's view, could cause actual results to
differ materially from those discussed in this press release include the
strength of world economies and currencies, general market conditions including
fluctuations in charter hire rates and vessel values, changes in demand in the
tanker market as a result of changes in OPEC's petroleum production levels and
world wide oil consumption and storage, changes in the Company's operating
expenses including bunker prices, dry-docking and insurance costs, changes in
governmental rules and regulations or actions taken by regulatory authorities,
potential liability from pending or future litigation, general domestic and
international political conditions, potential disruption of shipping routes due
to accidents or political events, and other important factors described from
time to time in the reports filed by the Company with the United States
Securities and Exchange Commission.
This information is subject of the disclosure requirements pursuant to section
5-12 of the Norwegian Securities Trading Act.
2nd Quarter 2012 Results:
http://hugin.info/182/R/1636897/526148.pdf
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originality of the information contained therein.
Source: Frontline Ltd. via Thomson Reuters ONE
[HUG#1636897]
