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FRO - Second Quarter and Six Months 2011 Results

Press release from Frontline Ltd. 26.08.2011


Highlights

 

 

  • Frontline reports a net loss attributable to the Company of $35.2 million and a loss per share of $0.45 for the second quarter of 2011. 

  • Frontline reports a net loss attributable to the Company of $19.8 million and a loss per share of $0.25 for the first half of 2011.  

  • Frontline announces a cash dividend of $0.02 per share for the second quarter of 2011.  

  • Frontline exercised its option to acquire the 2002-built VLCC Front Eagle and sold the vessel to an unrelated third party for $67.0 million. The vessel was delivered on May 27. A gain of $3.9 million was recognized in the second quarter and a gain of $13.1 million will be recognized over the remaining period of the two year time charter-in. 

  • Frontline terminated the long term charter parties for the OBO carriers Front Leader and Front Breaker in April and May 2011, respectively. The Company recorded losses of $9.3 million and $8.5 million, respectively, in the second quarter.  

  • The chartered-in VLCC Kensington was re-delivered by Frontline on May 18, 2011. 

 

 

Second Quarter and Six Months 2011 Results  

 

The Board of Frontline Ltd. (the "Company" or "Frontline") announces a net loss attributable to the Company of $35.2 million for the second quarter of 2011, equivalent to a loss per share of $0.45, compared with net income attributable to the Company of $15.5 million and earnings per share of $0.20 for the preceding quarter. The net loss attributable to the Company in the second quarter includes a loss on sale of assets and amortization of deferred gains of $12.0 million, which comprises losses of $9.3 million and $8.5 million arising on the termination of the long term charter parties for the OBO carriers Front Leader and Front Breaker, respectively, partially offset by gains of $3.9 million and $2.0 million relating to the sales of Front Eagle and Front Shanghai, respectively. The net income attributable to the Company in the preceding quarter included a gain on sale of assets and amortization of deferred gains of $13.2 million, which comprised a gain of $7.9 million on the sale of Front Shanghai and a gain of $5.3 million on the termination of the Ticen Sun and Front Ace charters. The net income attributable to the Company in the first quarter also included non-operating gains of $8.1 million. This is mainly related to a market value adjustment of $8.8 million to a funding agreement held by the Golden State companies in Independent Tankers Corporation Limited ("ITCL") for which termination notice was given by the Golden State companies in February 2011 and the amortization of a deferred gain of $3.1 million on the sale of a newbuilding contract, which were partially offset by a loss of $3.3 million on the sale of the Company's shares in Overseas Shipholding Group Inc ("OSG").

 

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 $26,100, $15,800 and $31,300, respectively, compared with $28,600, $17,300 and $36,300, respectively, in the preceding quarter. The spot earnings for the Company's double hull VLCCs and Suezmax vessels were $23,900 and $14,500, respectively, in the second quarter compared with $27,400 and $16,000, respectively, in the first quarter. The Gemini Suezmax pool had spot earnings of $16,200 per day in the second quarter compared to $17,700 per day in the first quarter. The Company's double hull VLCCs excluding the spot index time charter vessels had spot earnings of $25,700 per day in the second quarter, compared with $28,200 in the first quarter.

 

Profit share expense of $0.2 million has been recorded in the second quarter as a result of the profit sharing agreement with Ship Finance International Limited ("Ship Finance") compared to $2.3 million in the preceding quarter. Ship operating expenses increased by $0.3 million compared with the preceding quarter primarily as a result of an increase in drydocking costs of $2.3 million (three vessels drydocked in the second quarter compared with two vessels in the preceding quarter) partially offset by a decrease in running costs mainly due to recent sales and lease terminations.

 

Charter hire expenses increased by $0.9 million in the second quarter compared with the preceding quarter primarily due to an increase in the provision for loss making voyages and charter hire for Front Shanghai and Front Eagle, partially offset by a decrease in charter hire for Hampstead (due to off hire) and Kensington (due to re-delivery on May 18).

 

Interest income in the second quarter of $1.5 million relates to restricted deposits held by subsidiaries reported in ITCL. Interest expense, net of capitalized interest, was $35.7 million in the second quarter of which $7.4 million relates to ITCL.

 

Frontline announces a net loss attributable to the Company of $19.8 million for the six months ended June 30, 2011, equivalent to a loss per share of $0.25. The average daily TCEs earned in the spot and period market in the six months ended June 30, 2011 by the Company's VLCCs, Suezmax tankers and Suezmax OBO carriers were $27,400, $16,500 and $34,000, respectively, compared with $46,000, $31,400 and $47,800, respectively, in the six months ended June 30, 2010. The spot earnings for the Company's double hull VLCCs and Suezmax vessels were $25,600 and $15,200, respectively, in the six months ended June 30, 2011. The Gemini Suezmax pool had spot earnings of $17,000 per day and the Company's double hull VLCCs excluding the spot index time charter vessels had spot earnings of $27,000 per day, respectively, in the six months ended June 30, 2011.

 

As of June 30, 2011, the Company had total cash and cash equivalents of $173.2 million and restricted cash of $247.9 million. Restricted cash includes $188.5 million relating to deposits in ITCL and $58.0 million in Frontline, which is restricted under the charter agreements with Ship Finance.

 

In August 2011, the Company has average total cash cost breakeven rates for the remainder of 2011 on a TCE basis for VLCCs and Suezmax tankers of approximately $29,800 and $24,800, respectively.

 

 

Fleet Development

In January 2011, the chartered-in VLCC Desh Ujaala was re-delivered to the owners and the Company sold its 2006-built VLCC Front Shanghai. The net sale proceeds for Front Shanghai were $91.24 million and after repayment of debt the sale generated $31.5 million in cash. The Company agreed, in connection with the sale, to charter back the vessel from the new owner. The duration of the time charter is approximately two years at a rate of $35,000 per day. Delivery to the new owners and commencement of the time charter took place on January 26, 2011. The Company recorded a gain of $9.9 million in the first half of 2011. In addition, a gain of $11.8 million will be recognized on a straight line basis over the remaining period of the time charter.

In February 2011, the Company agreed with Ship Finance to terminate the long term charter parties between the companies for the single hull VLCCs Ticen Sun (ex. Front Highness) and Front Ace and Ship Finance simultaneously sold the vessels to unrelated third parties. The termination of the charters took place in February and March 2011, respectively. Ship Finance made a compensation payment to the Company of $5.3 million for the early termination of the charters, which was recorded in the first quarter.

In March 2011, the Company exercised its option to acquire the 2002-built VLCC Front Eagle and sold the vessel to an unrelated third party for $67.0 million. The Company agreed, in connection with the sale, to charter back the vessel from the new owner. The duration of the time charter is approximately two years at a rate of $32,500 per day. Delivery to the new owners and commencement of the time charter occurred on May 28, 2011. The Company recorded a gain of $3.9 million in the second quarter. In addition, the Company expects to record a gain of approximately $13.1 million over the remaining period of the two year time charter-in.

 

In March 2011, the bareboat charter out contract for the single hull VLCC Front Lady was extended until August 2013.

 

In April and May 2011, the Company agreed with Ship Finance to terminate the long term charter parties between the companies for the OBO vessels Front Leader and Front Breaker, respectively, and Ship Finance simultaneously sold the vessels. The termination of the charter parties took place on April 12, 2011 and May 26, 2011, respectively, and the Company made compensation payments to Ship Finance of $7.7 million and $6.6 million, respectively, for the early termination of the charter parties. The Company recorded losses of $9.3 million and $8.5 million, respectively, in the second quarter of 2011.

The chartered-in VLCC Kensington was re-delivered to the owners on May 18, 2011.

Newbuilding Program

 

As of June 30, 2011, Frontline's newbuilding program comprised two Suezmax tankers and five VLCCs, which constitute a contractual cost of $649.9 million. Installments of $198.5 million have been made on the newbuildings and the remaining installments to be paid as of June 30, 2011 amount to $451.4 million, with expected payments of approximately $27.0 million in 2011, $175.7 million in 2012 and $248.7 million in 2013. Expected payments of $79.9 million and $73.0 million have been moved from this year into 2012 and from 2012 into 2013, respectively, since the first quarter earnings release, as a result of an expected delay of approximately four to five months in the VLCC newbuilding program.

 

In November 2010, the Company secured pre- and post-delivery financing in the amount of $147.0 million representing 70 percent of the contract price for the first two VLCCs to be delivered in 2012. As of June 30, 2011 the facility was undrawn.

 

For the three remaining VLCCs and the two Suezmax tanker newbuildings to be delivered between late 2012 and 2013, the Company has not yet established pre- and post-delivery financing.  Based on the secured financing for the two VLCCs we assume a 70 percent financing of current market values for these newbuildings. On the basis of these assumptions, Frontline has already paid 99 percent of the equity investment and the remaining newbuilding installments are expected to be almost entirely financed by bank debt.

 

Corporate

In January 2011, Frontline sold all its shares in OSG. The sale generated approximately $46.5 million in cash and the Company recorded a loss of $3.3 million in the first quarter in other non-operating items.

On April 11, 2011, the Company announced that it had approved a grant of 145,000 share options under the terms of the existing share option scheme. The share options will have a five-year term and will vest equally one third each year over a three-year vesting period. The strike price for the options has been set to NOK 131.10 per share.  

On August 25, 2011, the Company's Board of Directors declared a dividend of $0.02 per share. The record date for the dividend is September 9, 2011, ex dividend date is September 7, 2011 and the dividend will be paid on or about September 26, 2011.

 

77,858,502 ordinary shares were outstanding as of June 30, 2011, and the weighted average number of shares outstanding for the quarter was 77,858,502.

 

The Company reports vessel values provided from a broker panel on all loan facilities to the banks each quarter. At June 30, 2011 we were in compliance with the minimum value requirements on the vessels set in the loan agreements. We were also in compliance with other covenants set in the loan agreements.

 

The full report is available for download in the link enclosed and from the Company's website www.frontline.bm.

 

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.

 

 

The Board of Directors
Frontline Ltd.
Hamilton, Bermuda
August 25, 2011

 

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

 

This information is subject of the disclosure requirements pursuant to section 5-12 of the Norwegian Securities Trading Act.
2nd quarter 2011 results

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