Highlights
· Frontline reports net income attributable to the Company of $81.3 million and earnings per share of $1.04 for the second quarter of 2010.
· Frontline reports net income attributable to the Company of $161.0 million and earnings per share of $2.07 for the first half of 2010.
· Frontline announces a cash dividend of $0.75 per share for the second quarter of 2010.
· In June 2010, Frontline ordered two 156,900 dwt Suezmax newbuildings with expected deliveries in February and May 2013 and secured options for two similar Suezmax newbuildings.
· In May and June 2010, Frontline took delivery of the two 2009-built VLCCs, Front Eminence and Front Endurance.
· The third and fourth VLCC newbuildings from Shanghai Waigaoqiao Shipbuilding Co., Ltd., Front Cecilie and Front Signe, were delivered in June and August 2010, respectively.
· The third and fourth Suezmax newbuildings from Jiangsu Rongsheng Heavy Industries Co., Ltd., Front Odin and Front Njord, were delivered in May and August 2010, respectively.
· In June 2010, Frontline received notices from the owners of two chartered-in 2001-built Suezmax tankers and two chartered-in 2000-built VLCCs that the owners exercised their option to extend the charter period for two years to the end of 2013 from the expiry of the mandatory lease period at the end of 2011.
Second Quarter and Six Months 2010 Results
The Board of Frontline Ltd. (the “Company” or “Frontline”) announces net income attributable to the Company of $81.3 million for the second quarter of 2010, equivalent to earnings per share of $1.04, compared with net income attributable to the Company of $79.7 million and earnings per share of $1.02 for the preceding quarter. The net income attributable to the Company in the second quarter includes a gain of $6.7 million relating to the amortization of a deferred gain on three lease terminations and a gain of $3.0 million relating to a lease termination. Net operating income in the second quarter was $118.0 million compared with $112.0 million in the preceding quarter.
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 $46,600, $31,000 and $47,700, respectively, compared with $45,300, $31,800, and $47,900, respectively, in the preceding quarter. The spot earnings for the Company’s double hull VLCCs and Suezmax vessels were $50,000 and $30,300, respectively, in the second quarter compared with $49,200 and $30,600, respectively, in the first quarter. The Gemini Suezmax pool had spot earnings of $29,800 per day in the second quarter compared to $30,900 per day in the first quarter. The Company’s double hull VLCC tankers excluding the floating time charter vessels had spot earnings of $51,900 per day in the second quarter, compared with $54,000 in the first quarter.
Profit share expense of $11.4 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 $11.3 million in the preceding quarter. Ship operating expenses increased by $1.8 million compared with the preceding quarter primarily as a result of increase in running cost of $2.8 million mainly related to the four newbuildings, which were delivered in the six months ended June 30, 2010, partially offset by a $1.0 million decrease in drydocking costs.
Charterhire expenses increased by $8.6 million in the second quarter compared with the preceding quarter primarily due to an increase in the number of Nordic American Tanker Shipping Ltd. (“NATS”) vessels, which entered the Gemini pool and had a corresponding increase in pool earnings. With effect from July 1, 2010, NATS became a full pool partner in the Gemini pool and we no longer charter in the NATS vessels. This will result in a decrease in charter hire expense in the third quarter with a corresponding decrease in operating revenues.
Interest income was $3.9 million in the second quarter, of which $3.8 million relates to restricted deposits held by subsidiaries reported in Independent Tankers Corporation Limited (“ITCL”). Interest expense, net of capitalized interest, was $37.6 million in the second quarter of which $8.7 million relates to ITCL.
Frontline announces net income attributable to the Company of $161.0 million for the six months ended June 30, 2010, equivalent to earnings per share of $2.07. The average daily TCEs earned in the spot and period market in the six months ended June 30, 2010 by the Company’s VLCCs, Suezmax tankers and Suezmax OBO carriers were $46,000, $31,400 and $47,800, respectively, compared with $44,200, $32,300 and $43,500, respectively, in the six months ended June 30, 2009. The spot earnings for the Company’s double hull VLCCs and Suezmax vessels were $49,700 and $30,400, respectively, in the six months ended June 30, 2010. The Gemini Suezmax pool had spot earnings of $30,300 per day and the Company’s double hull VLCC tankers excluding the floating time charter vessels had spot earnings of $51,600 per day, respectively, in the six months ended June 30, 2010.
As of June 30, 2010, the Company had total cash and cash equivalents of $168.6 million and restricted cash of $305.1 million. Restricted cash includes $242.3 million relating to deposits in ITCL and $62.8 million in Frontline, which is restricted under the charter agreements with Ship Finance.
In August 2010, the Company has average total cash cost breakeven rates on a TCE basis for VLCCs and Suezmax tankers of approximately $30,900 and $26,400, respectively.
Fleet Development
In January 2010, Frontline terminated the bareboat charter for the single hull Suezmax tanker Front Voyager. The termination took effect from April 1, 2010. The vessel, owned by Frontline’s subsidiary ITCL, was subsequently sold.
The remaining Suezmax tanker chartered in from Eiger Shipping was redelivered at the end of February 2010.
In March 2010, Frontline agreed with Ship Finance to terminate the long term charter party for the single hull VLCC Golden River. Ship Finance simultaneously sold the vessel to an unrelated third party. The termination of the charter took place in April 2010 and Ship Finance has made a compensation payment to Frontline of approximately $2.9 million for the early termination of the charter party.
In January 2010, the Company took delivery of the first Suezmax newbuilding from Jiangsu Rongsheng Heavy Industries Co., Ltd. (“Rongsheng”), named Northia, and the vessel was subsequently delivered to a major oil company on floating rate time charter. In March and May 2010, the Company took delivery of the second and the third Suezmax newbuildings, named Naticina and Front Odin, from Rongsheng. The Naticina was subsequently delivered to a major oil company on floating rate time charter and Front Odin commenced trading in the Gemini pool. In August 2010, the Company took delivery of the fourth and final Suezmax newbuilding from Rongsheng, named Front Njord. Compensation payments for delayed delivery were negotiated with the yard for all four vessels.
In April 2010, Frontline announced the acquisition of two 2009-built 321,300 dwt double hull VLCC tankers; Callisto Glory and Andromeda Glory from an unrelated third party. The first vessel; renamed Front Eminence, was delivered on May 18, 2010 and the second vessel; renamed Front Endurance, was delivered on June 28, 2010. We have secured a loan facility representing approximately 70 percent financing of the purchase price to part finance the purchase of the vessels and an amount of $73.5 million of this facility was undrawn at June 30, 2010.
The third and fourth VLCC newbuildings from Shanghai Waigaoqiao Shipbuilding Co., Ltd (“SWS”), Front Cecilie and Front Signe, were delivered according to schedule in June and August 2010, respectively.
In June 2010, Frontline received notices from the owners of the two chartered-in 2001-built Suezmax tankers, Front Melody and Front Symphony, and the two chartered-in 2000-built VLCCs, Front Tina and Front Commodore, that the owners exercised their option to extend the charter period for two years to the end of 2013 from the expiry of the mandatory lease period at the end of 2011. The Company believes the charter-in rates are attractive compared to current time charter rates. The owners have the option to further extend the charter periods until the end of 2015.
In June 2010, the single hull VLCC Front Duke was redelivered from her time charter agreement and subsequently entered into a bareboat charter agreement expiring at the end of 2012. The vessel will be operated as a floating storage unit and has ceased to trade as a regular tanker.
Newbuilding Program
In June 2010, Frontline entered into a contract with Rongsheng for the delivery of two 156,900 dwt Suezmax newbuildings. The vessels are expected to be delivered in February and May 2013. Frontline has also secured options for two similar Suezmax newbuildings. The contract price for the newbuildings is 15-20 percent lower than indicated price levels for 2010 delivered tonnage.
As of June 30, 2010, Frontline’s newbuilding program comprised three Suezmax tankers, two Suezmax newbuilding options and five VLCCs, which constitutes a contractual cost of $799.7 million. Out of the total contractual cost the financial exposure on two VLCC’s ordered at Jinhaiwan of $252 million can be limited to the $54 million already paid-in installments (“the VLCC Options”). As of June 30, 2010, installments of $246.4 million were paid on the newbuildings.
The remaining installments to be paid as of June 30, 2010 amount to $355.3 million, with expected payments of approximately $139.4 million in 2010, $112.9 million in 2011, $21.9 million in 2012 and $81.2 million in 2013. These numbers exclude payments on the VLCC Options.
The Company has not yet secured financing for the two VLCCs and two Suezmax tanker newbuildings to be delivered between 2011 and 2013. However, based on the recently secured financing for Front Eminence and Front Endurance and indications from banks, we assume a 70 percent financing of market value for these newbuildings. The net remaining equity investment is thus approximately $41.1 million, which is fully covered through the recent completion of the $225 million convertible bond offering.
Corporate
In April 2010, Frontline completed the issuance of the $225 million convertible bond loan.
In August 2010, Frontline sold a 25 percent share in the ship management company SeaTeam Management Pte Ltd. to Golden Ocean Group Limited.
On August 26, 2010, the Company’s Board of Directors declared a dividend of $0.75 per share. The record date for the dividend is September 10, 2010, ex dividend date is September 8, 2010 and the dividend will be paid on or about September 24, 2010.
77,858,502 ordinary shares were outstanding as of June 30, 2010, and the weighted average number of shares outstanding for the quarter was 77,858,502.
The full report is available for download in the link enclosed and from the Company’s website www.frontline.bm.
The Board of Directors
Frontline Ltd.
Hamilton, Bermuda
August 26, 2010
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.