· Frontline reports a net loss attributable to the Company of $18.8 million and a loss per share attributable to the Company of $0.24 for the first quarter of 2013.
· In January 2013, Frontline terminated the charter party for the single hull VLCC Titan Aries (ex Edinburgh) and recognized a gain of $7.6 million in the first quarter.
· At a special general meeting of shareholders held on May 8, 2013, our shareholders approved a decrease in the par value of our ordinary shares from $2.50 to $1.00 per share effective May 14, 2013.
First Quarter 2013 Results
The Board of Frontline Ltd. (the “Company” or “Frontline”) announces a net loss attributable to the Company of $18.8 million, equivalent to a loss per share of $0.24, compared with a net loss attributable to the Company of $16.6 million for the fourth quarter of 2012, equivalent to a loss per share of $0.21. The net loss attributable to the Company in the first quarter includes a gain on sale of assets and amortization of deferred gains of $9.2 million, which includes a gain of $7.6 million on the termination of the charter party for the single hull VLCC, Titan Aries, and a deferred gain of $1.8 million relating to the sale and leaseback of the VLCC DHT Eagle (ex Front Eagle). The net loss attributable to the Company in the fourth quarter included a loss on sale of assets and amortization of deferred gains of $14.9 million, which included an aggregate deferred gain of $3.7 million relating to the sale and leasebacks of the VLCC DHT Eagle and Gulf Eyadah (ex Front Shanghai) and a gain of $11.2 million on the termination of the lease for the single hull VLCC Ticen Ocean.
Following the termination of the lease on the Company’s final OBO carrier, Front Guider, the results of the OBO carriers have been recorded as discontinued operations in accordance with U.S. generally accepted accounting principles. The Company reports a net loss from discontinued operations of $0.5 million in the first quarter compared with a net loss from discontinued operations of $21,000 in the preceding quarter.
The average daily time charter equivalents (“TCEs”) earned in the spot and period market in the first quarter by the Company’s VLCCs and Suezmax tankers were $17,000 and $14,500, respectively, compared with $19,300 and $14,000, respectively, in the preceding quarter. The spot earnings for the Company’s double hull VLCCs and Suezmax vessels were $14,600 and $14,500 respectively, compared with $18,500 and $14,000, respectively, in the preceding quarter.
Contingent rental expense relates to the amended charter parties with Ship Finance International Limited (“Ship Finance”) and the amended charter parties for four other leased vessels and is based on the difference between the renegotiated rates and the actual TCE revenues up to the original contract rates. Contingent rental expense in the three months ended March 31, 2013 is income as the contingent rental expense relating to the four non-Ship Finance vessels is calculated quarterly on a cumulative basis over the four year period to December 31, 2015 and the accrued contingent rental expense at March 31, 2013 was lower than the accrued contingent rental expense at December 31, 2012.
Ship operating expenses decreased by $0.4 million compared with the preceding quarter primarily as a result of a decrease in running costs and a decrease in drydocking costs of $0.2 million.
Charter hire expenses decreased by $2.4 million in the first quarter compared with the preceding quarter primarily as a result of the redelivery of the Gulf Eyadah in December 2012.
Interest expense, net of capitalized interest, was $22.6 million in the first quarter of which $5.6 million relates to the Company’s subsidiary Independent Tankers Corporation Limited (“ITCL”).
As of March 31, 2013, the Company had total cash and cash equivalents of $109.5 million compared with $137.6 million as of December 31, 2012 and restricted cash of $71.1 million compared with $87.5 million as of December 31, 2012. Restricted cash includes $70.6 million relating to deposits in ITCL. The Company used $28.6 million in operating activities, generated $19.1 million from investment activities and repaid long term debt and capital leases by $18.6 million.
The Company estimates average total cash cost breakeven rates for the remainder of 2013 on a TCE basis for its VLCCs and Suezmax tankers of approximately $25,500 and $18,500, respectively.
In December 2012, the Company agreed to an early termination of the time charter out contracts on the two OBO carriers, Front Viewer and Front Guider, and received a compensation payment in December 2012 from the charterers for loss of hire due to the early termination of $35.0 million. This amount was recorded in operating revenues in 2012 and has now been recorded in the results from discontinued operations. The Company also agreed with Ship Finance to terminate the long term charter parties for these two OBO carriers. The charter party for Front Viewer terminated in December 2012 and the charter party for the Front Guider terminated in March 2013. The Company paid $23.5 million to Ship Finance as compensation for the early termination of the charters and the estimated loss of contingent rentals relating to the two vessels. As previously advised the Company recorded in the fourth quarter a loss on termination of the lease for Front Viewer of $16.5 million and a vessel impairment loss of $14.2 million on the expected loss on termination of the lease on Front Guider in March 2013. These losses have now been recorded in the results from discontinued operations.
In January 2013, the Company terminated the charter party for the single hull VLCC Titan Aries and recognized a gain of $7.6 million in the first quarter of 2013.
In January 2013, BP Shipping gave twelve months notice of its intention to terminate the bareboat charter for the VLCC British Progress. Termination will take effect on February 2, 2014.
In February 2013, the Company agreed with Ship Finance to terminate the long term charter party between the companies for the Suezmax tanker, Front Pride, and Ship Finance simultaneously sold the vessel. The termination of the charter party took place on February 15, 2013 and the Company made a net compensation payment to Ship Finance of $2.1 million for the early termination of the charter party.
In March 2013, the VLCC Ulysses (ex Phoenix Voyager) was redelivered to ITCL by Chevron and the vessel commenced trading in the spot market.
As of March 31, 2013, the Company’s newbuilding program comprised two Suezmax tankers and the Company was committed to make newbuilding installments of $87.9 million with expected payment of $50.2 million in 2013 and $37.7 million in 2014.
In January 2013, the Company paid $6.0 million for 1,143,000 shares in a private placement by Frontline 2012 of 59 million new ordinary shares at a subscription price of $5.25 per share. Following the private placement, the Company’s ownership in Frontline 2012 was reduced from 7.9% to 6.3%. The Company recognized a gain on the dilution of its ownership of $5.2 million in the first quarter of 2013 in “share of income (losses) from associated companies”.
In April 2013 Ms. Cecile Fredriksen and Mr. Tony Curry resigned from their positions as Directors of the Company. One of the vacancies created by these departures was filled by Georgina Sousa. Mrs. Sousa joined the Company as Head of Corporate Administration in 2007. Mrs. Sousa is also a Director of Golar LNG Limited, Golden Ocean Group Limited and Frontline 2012 Ltd.
At a special general meeting of shareholders held on May 8, 2013 our shareholders approved a decrease in the par value of our ordinary shares from $2.50 to $1.00 per share effective May 14, 2013.
77,858,502 ordinary shares were outstanding as of March 31, 2013, and the weighted average number of shares outstanding for the quarter was 77,858,502.
The market rate for a VLCC trading on a standard ‘TD3’ voyage between the Arabian Gulf and Japan in the first quarter of 2013 was WS 35, representing a decrease of approximately WS 7.8 point from the fourth quarter of 2012 and a decrease of approximately WS 21 points from the first quarter of 2012. The flat rate increased by 9.1% from 2012 to 2013.
The market rate for a Suezmax trading on a standard ‘TD5’ voyage between West Africa and Philadelphia in the first quarter of 2013 was WS 57.5, representing a decrease of three WS points from the fourth quarter of 2012 and a decrease of WS 25 points from the first quarter of 2012. The flat rate increased by 9.3% from 2012 to 2013.
Bunkers at Fujairah averaged $633/mt in the first quarter of 2013 compared to $615/mt in the fourth quarter of 2012. Bunker prices varied between a low of $606/mt on January 2nd and a high of $663/mt on February 18th.
The International Energy Agency’s (“IEA”) May 2013 report stated an OPEC oil production, including Iraq, of 30.5 million barrels per day (mb/d) in the first quarter of 2013. This was a decrease of 0.4 mb/d compared to the fourth quarter of 2012.
The IEA estimates that world oil demand averaged 89.8 mb/d in the first quarter of 2013, which is a decrease of 1.2 mb/d compared to the previous quarter. IEA estimates that world oil demand in 2013 will be 90.6 mb/d, representing an increase of 0.9 percent or 0.8 mb/d from 2012.
The VLCC fleet totalled 634 vessels at the end of the first quarter of 2013, up from 622 vessels at the end of the previous quarter. 14 VLCCs were delivered during the quarter, two were removed. The order book counted 81 vessels at the end of the first quarter, unchanged from the previous quarter. The current order book represents approximately 13 percent of the VLCC fleet. According to Fearnleys, the single hull fleet is 15 vessels, two less than last quarter.
The Suezmax fleet totaled 480 vessels at the end of the first quarter, up from 468 vessels at the end of the previous quarter. 14 vessels were delivered during the first quarter whilst two were removed. The order book counted 54 vessels at the end of the first quarter, which represents approximately 11 percent of the Suezmax fleet. According to Fearnley’s, the single hull fleet stands unchanged at five vessels.
Strategy and Outlook
The Board is of the opinion that the tanker market is massively oversupplied today and that it may take some time before a reasonable market balance is restored and sustained recovery of the tanker market occurs. The Board believes that such a market balance and sustained recovery of the tanker market will be dependent on the extent of phase out of existing tonnage as well as global growth conditions.
The Company’s free cash position decreased from $137.6 million to $109.5 million during the first quarter and is expected to fall further in the second quarter as a consequence of the continued weak tanker market and more vessels dry docked in the second quarter than in the first quarter.
If the tanker market does not recover in the short term and no additional equity can be raised or assets sold there is a risk that Frontline will have insufficient cash to satisfy liquidity requirements and to repay the existing $225 million convertible bond loan at maturity in April 2015. Such a situation might force a restructuring of the Company, including modifications of charter lease obligations and debt agreements.
Based on rates achieved so far in the second quarter, increased dry docking costs in the second quarter and the current outlook, the Board expects the operating result in the second quarter to be weaker than in the first quarter.
The full report is available for download in the link enclosed.
The Board of Directors
May 29, 2013
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.