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FRO - Second Quarter and Six Months 2012 Results

Press release from Frontline Ltd. 29.08.2012


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   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

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