Frontline reports a net loss attributable to the Company of $12.1 million for the first quarter of 2014, equivalent to a loss per share of $0.13.
Frontline reports net income attributable to the Company of $3.6 million for the first quarter of 2014 when excluding loss on the sale of vessels, equivalent to earnings per share of $0.04.
- Frontline will not pay a dividend for the first quarter of 2014.
- Frontline issued 8,829,063 new shares in the first quarter further to the ATM offering launched in June 2013 and further 1,635,589 new shares in April 2014.
- In April 2014, Frontline agreed with Rongsheng shipyard to swap its two Suezmax newbuildings on order with two similar Suezmax vessels from the same shipyard, at a lower contract price.
FIRST QUARTER 2014 RESULTS
The Board of Frontline Ltd. (the “Company” or “Frontline”) announces a net loss attributable to the Company of $12.1 million in the first quarter, equivalent to a loss per share of $0.13, compared with a net loss of $13.0 million in the preceding quarter, equivalent to a loss per share of $0.15. The net loss attributable to the Company in the first quarter includes a loss on the sale of the VLCC Ulysses of $15.7 million. The net loss attributable to the Company in the fourth quarter includes a net gain of $13.8 million, which was recognized on the lease terminations of the VLCCs Front Champion and Golden Victory and a loss of $12.7 million, which was recognized on the conversion of $25.0 million of the Company’s convertible bonds into cash and shares.
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 $32,700 and $27,700, respectively, compared with $22,400 and $12,900, respectively, in the preceding quarter. The spot earnings for the Company’s double hull VLCCs and Suezmax vessels were $32,500 and $27,700, respectively, compared with $21,600 and $12,900, respectively, in the preceding quarter.
Contingent rental expense of $13.0 million in the first quarter comprises $11.7 million relating to the amended charter parties for the vessels leased from Ship Finance International Limited and $1.3 million relating to the amended charter parties for four vessels leased from German KGs vessels. Contingent rental expense of $1.7 million in the fourth quarter relates to the amended charter parties for four KG vessels.
Ship operating expenses decreased by $0.2 million. Dry docking costs decreased by $0.6 million and this was partially offset by an increase in running expenses.
Interest expense, net of capitalized interest, was $21.6 million in the first quarter of which $5.9 million relates to the Company’s subsidiary Independent Tankers Corporation Limited (“ITCL”).
As of March 31, 2014, the Company had total cash and cash equivalents of $111.2 million and restricted cash of $74.9 million. Restricted cash includes $74.1 million relating to deposits in ITCL.
The Company estimates average total cash cost breakeven rates for the remainder of 2014 on a TCE basis for VLCCs and Suezmax tankers of approximately $25,200 and $17,800, respectively.
In March 2014, a wholly-owned subsidiary of ITCL entered into an agreement to sell the VLCC Ulysses to an unrelated third party for net sale proceeds of $25.5 million and the vessel was delivered to the buyer on March 11, 2014.
As of March 31, 2014 the Company had two Suezmax newbuilding contracts and was committed to making newbuilding installments of $87.9 million with expected payment in 2014.
In April 2014, the Company agreed with Rongsheng shipyard to swap its two Suezmax newbuildings on order with two similar Suezmax vessels from the same shipyard at a lower contract price. Installments paid to date will be allocated to the new vessels. The first vessel was delivered on May 19, 2014 following the payment of the final installment of $41.5 million and the second vessel is expected to be delivered in September 2014. The Company is committed to making payments of $41.5 million as of the date of this press release with expected payment in September 2014.
The Company issued 8,829,063 new ordinary shares under the ATM program during the first quarter. 95,340,776 ordinary shares were outstanding as of March 31, 2014, and the weighted average number of shares outstanding for the quarter was 93,841,670.
The Company issued 1,635,589 new shares under the ATM program during April 2014. 96,976,365 ordinary shares were outstanding as of the date of this press release.
The market rate for a VLCC trading on a standard ‘TD3’ voyage between the Arabian Gulf and Japan in the first quarter of 2014 was WS 51, representing a decrease of WS 2 point from the fourth quarter of 2013 and WS16 above the first quarter of 2013. The flat rate decreased by 6.7 percent from 2013 to 2014.
The market rate for a Suezmax trading on a standard ‘TD5’ voyage between West Africa and Philadelphia in the first quarter of 2014 was WS 79, representing an increase of WS 13 points from the fourth quarter of 2013 and an increase of WS 21 points from the first quarter of 2013. The flat rate decreased by 6 percent from 2013 to 2014.
Bunkers at Fujairah averaged $611/mt in the first quarter of 2014 compared to $615/mt in the fourth quarter of 2013. Bunker prices varied between a high of $627/mt on January 15th and a low of $599/mt on March 12th.
The International Energy Agency’s (“IEA”) May 2014 report stated an OPEC crude production of 30.0 million barrels per day (mb/d) in the first quarter of 2014. This was an increase of 0.2 mb/d compared to the fourth quarter of 2013.
The IEA estimates that world oil demand averaged 91.3 mb/d in the first quarter of 2014, which is a decrease of 1.1 mb/d compared to the previous quarter. IEA estimates that world oil demand in 2014 will be 92.8 mb/d, representing an increase of 1.5 percent or 1.4 mb/d from 2013.
The VLCC fleet totalled 627 vessels at the end of the first quarter of 2014, four vessels up from the previous quarter. Five VLCCs were delivered during the quarter, one was removed. The order book increased by 12 vessels and counted 94 vessels at the end of the first quarter, which represents 15 percent of the VLCC fleet.
The Suezmax fleet totalled 449 vessels at the end of the first quarter, up three from 446 vessels at the end of the previous quarter. Three vessels were delivered during the quarter whilst none were removed. The order book counted 40 vessels at the end of the first quarter, which represents approximately nine percent of the Suezmax fleet.
STRATEGY AND OUTLOOK
As of March 31, 2014, the Company had total debt and lease obligations, excluding non-recourse debt in ITCL, of $1,044 million comprised of $718 million in capital lease obligations to Ship Finance, $76 million in notes payable to Ship Finance, $60 million in capital lease obligations to German KGs and $190 million in convertible bond loan. A full repayment of this debt is, to a large extent, dependent on a sustained improvement in tanker rates going forward.
In the event that cash flow from operations does not enable Frontline to satisfy short term or medium to long term liquidity requirements, Frontline will have to consider alternatives, such as raising equity or selling assets, establish new loans or refinance existing arrangements. If no additional equity can be raised, assets sold, new loans established or existing arrangements refinanced, there is a risk that Frontline will not have sufficient cash to repay the existing $190 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.
The Company is also committed to make newbuilding installments of $41.5 million as of the date of this press release with expected payment in September 2014 relating to one newbuilding after having taken delivery of one newbuilding May 19, 2014, which was financed by $41.5 million cash on hand. The Company expects to partly finance these payments with bank debt that it intends to arrange.
The balance sheet has been strengthened after March 31, 2014 from the raising of $6.3 million in new equity in April 2014. The Board is actively monitoring the situation and looking into opportunities to restructure the balance sheet and further improve the Company’s financial position.
The recent negative development in the tanker market is likely to give a weaker operating result (excluding one time gains and losses) in the second quarter.
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
May 26, 2014
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