Frontline reports a net loss attributable to the Company of $78.2 million for the second quarter of 2014, equivalent to a loss per share of $0.81.
Frontline reports a net loss attributable to the Company of $22.1 million for the second quarter of 2014, when excluding impairment loss of $56.2 million, equivalent to a loss per share of $0.23.
Frontline reports a net loss attributable to the Company of $90.3 million for the six months ended June 30, 2014, equivalent to a loss per share of $0.95.
Frontline reports a net loss attributable to the Company of $18.4 million for the six months ended June 30, 2014, when excluding loss on sale of vessels and impairment loss, equivalent to a loss per share of $0.19.
Frontline has issued 2,865,511 new shares under the ATM program in the second quarter and a further 1,140,226 new shares in July 2014.
- Frontline took delivery of the Suezmax newbuilding, Front Ull, in May 2014.
- Frontline entered into a $60.0 million term loan facility in June 2014 to part finance its two Suezmax newbuildings.
- Frontline agreed with Ship Finance in July 2014 to terminate the long term charter parties for the 1999 built VLCCs Front Opalia, Front Comanche and Front Commerce and Ship Finance simultaneously sold the vessels to unrelated third parties. The charter parties are expected to terminate in the fourth quarter of 2014.
Second Quarter and Six Months 2014 Results
The Board of Frontline Ltd. (the “Company” or “Frontline”) announces a net loss attributable to the Company of $78.2 million in the second quarter, equivalent to a loss per share of $0.81, compared with a net loss of $12.1 million for the first quarter, equivalent to a loss per share of $0.13.
The Company has recorded a vessel impairment loss of $56.2 million in the three and six months ended June 30, 2014. This loss relates to the VLCCs Front Opalia, Front Commerce and Front Comanche. 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 and Suezmax tankers were $13,900 and $12,400, respectively, compared with $32,700 and $27,700, respectively, in the preceding quarter. The spot earnings for the Company’s double hull VLCCs and Suezmax vessels were $12,500 and $12,400, respectively, compared with $32,500 and $27,700, respectively, in the preceding quarter.
Contingent rental expense represents amounts accrued following changes to certain charter parties in December 2011 and decreased in the second quarter as compared to the first quarter primarily due to a decrease in actual spot market rates.
Interest expense, net of capitalized interest, was $21.2 million in the second quarter of which $5.7 million relates to the Company’s subsidiary Independent Tankers Corporation Limited (“ITCL”).
Frontline announces a net loss attributable to the Company of $90.3 million for the six months ended June 30, 2014, equivalent to a loss per share of $0.95. The average daily TCEs earned in the spot and period market in the six months ended June 30, 2014 by the Company’s VLCCs and Suezmax tankers were $23,400 and $19,800, respectively, compared with $14,600 and $14,100, respectively, in the six months ended June 30, 2013. The spot earnings for the Company’s double hull VLCCs and Suezmax vessels were $22,600 and $19,800, respectively, in the six months ended June 30, 2014 compared with $12,900 and $14,100, respectively, in the six months ended June 30, 2013.
As of June 30, 2014, the Company had total cash and cash equivalents of $62.4 million and restricted cash of $36.7 million. Restricted cash includes $35.9 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 $24,000 and $17,800, respectively.
In July 2014, several of the subsidiaries and related entities in the Windsor group (the “Windsor group”), owned by ITCL, filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court in Wilmington, Delaware. In connection with the filing, the Windsor group has entered into a restructuring support agreement with bondholders. Under the restructuring and support agreement, the supporting holders of the Notes have agreed to support a plan of reorganization that would convert claims on account of the Notes for 100% of the equity in the reorganized company. On August 25th a plan of reorganization was filed the terms of which are consistent with the Plan Support Agreement. This could provide for Windsor to emerge as early as November. The Company expects to de-consolidate the Windsor group in the third quarter of 2014 as a consequence of the Chapter 11 filing and the fact the group is consolidated under the variable interest entity model. The Company also expects to record an impairment loss in the third quarter of approximately $5 million. The Company will enter into a revised management agreement with the reorganized Windsor group and will continue to provide commercial management for its vessels.
In July 2014, the Company agreed with Ship Finance to terminate the long term charter parties for the 1999 built VLCCs Front Opalia, Front Comanche and Front Commerce and Ship Finance simultaneously sold the vessels to unrelated third parties. The charter parties are expected to terminate in the fourth quarter of 2014. The decision to terminate the long term charter parties was taken in view of the required investment to take the vessels through the 15 year special survey. The Company has agreed an aggregate compensation payment to Ship Finance of approximately $58.8 million for the early termination of the charter parties, of which approximately $10.5 million will be paid upon termination and the balance will be recorded as notes payable, with similar amortization profiles to the current lease obligations, with reduced rates until December 2015 and full rates from 2016.
The Company equity accounts for three wholly-owned subsidiaries, which each own one vessel currently on bareboat charter to Chevron. In July 2014, the Company received a request from Chevron to terminate the three bareboat charters early and not April 1, 2015 as scheduled. Such early termination would also result in the full redemption of all the outstanding Term Notes. The Company is currently in discussion with Chevron on this matter.
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, the Front Ull, was delivered on May 19, 2014 following payment of the final installment of $41.5 million and the second vessel is expected to be delivered in the fourth quarter of 2014. The Company is committed to making payments of $41.5 million as of the date of this report.
The Company issued 2,865,511 new ordinary shares under its ATM program in the three months ended June 30, 2014 and had an issued share capital at June 30, 2014 of $98,206,287 divided into 98,206,287 ordinary shares (December 31, 2013: $86,511,713 divided into 86,511,713 ordinary shares). The weighted average number of shares outstanding for the quarter was 96,855,462.
In June 2014, the Company entered into a $60.0 million term loan facility to part finance its two Suezmax newbuildings. No drawdowns were made in the second quarter. We intend to draw $30.0 million in the third quarter for the vessel delivered in the second quarter and the balance when the next vessel is delivered.
The market rate for a VLCC trading on a standard ‘TD3’ voyage between the Arabian Gulf and Japan in the second quarter of 2014 was WS 38, representing a decrease of WS 13 points from the first quarter of 2014 and in line with the second 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 second quarter of 2014 was WS 63, representing a decrease of WS 16 points from the first quarter of 2014 and an increase of WS 9 points from the second quarter of 2013. The flat rate decreased by 6 percent from 2013 to 2014.
Bunkers at Fujairah averaged $601/mt in the second quarter of 2014 compared to $611/mt in the first quarter of 2014. Bunker prices varied between a high of $621/mt on June 23rd and a low of $589/mt on May 8th.
The International Energy Agency’s (“IEA”) August 2014 report stated an OPEC crude production of 30.0 million barrels per day (mb/d) in the second quarter of 2014. This was unchanged compared to the first quarter of 2014.
The IEA estimates that world oil demand averaged 91.7 mb/d in the second quarter of 2014, which is an increase of 0.2 mb/d compared to the previous quarter. IEA estimates that world oil demand in 2014 will be 92.7 mb/d, representing an increase of 1.2 percent or 1.1 mb/d from 2013.
The VLCC fleet totalled 629 vessels at the end of the second quarter of 2014, two vessels up from the previous quarter. Five VLCCs were delivered during the quarter, three were removed. The order book increased by 12 vessels and counted 92 vessels at the end of the second quarter, which represents 15 percent of the VLCC fleet.
The Suezmax fleet totalled 448 vessels at the end of the second quarter, down one from the end of the previous quarter. One vessel was delivered during the quarter whilst two were removed. The order book counted 55 vessels at the end of the second quarter, which represents approximately 12 percent of the Suezmax fleet.
Strategy and Outlook
Despite the improved tanker market experienced so far in the third quarter, the Company is in a challenging situation with $1,031 million in debt and lease obligations as of June 30, 2014. Based on the current outlook for the tanker market, it is doubtful if the Company can generate sufficient cash from operations to repay the $190 million convertible bond loan with maturity in April 2015. The Board is considering various financing alternatives such as raising equity or selling assets, establish new loans or refinance existing arrangements to raise sufficient cash to repay the $190 million convertible bond loan. A full restructuring of the company, including lease obligations and debt agreements might be the only alternative.
The positive development in the tanker market in the third quarter is likely to give an improved operating result (excluding one time gains and losses) in the third 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
August 27, 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