Highlights
-
Frontline reports a net loss attributable to the Company of $49.0 million for the third quarter of 2012, equivalent to a loss per share of $0.63.
-
Frontline reports a net loss attributable to the Company of $66.2 million for the nine months ended September 30, 2012, equivalent to a loss per share of $0.85.
-
Frontline will not pay a dividend for the third quarter of 2012.
-
In August and October 2012, Frontline agreed to terminate the long term charter parties with Ship Finance for the OBO carriers Front Climber and Front Driver, respectively.
-
In September 2012, Frontline agreed with NAT that Frontline’s nine Suezmax vessels will leave the Orion Suezmax pool.
Third Quarter and Nine Months 2012 Results
The Board of Frontline Ltd. (the “Company” or “Frontline”) announces a net loss attributable to the Company of $49.0 million for the third quarter of 2012, equivalent to a loss per share of $0.63, compared with a net loss, excluding impairment losses, attributable to the Company of $11.2 million and a loss per share of $0.14 for the preceding quarter. The net loss attributable to the Company in the third quarter includes a gain on sale of assets and amortization of deferred gains of $3.3 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 loss attributable to the Company in the preceding 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 and Gulf Eyadah. The net loss attributable to the Company in the preceding quarter also include an impairment loss of $13.1 million.
The average daily time charter equivalents (“TCEs”) earned in the spot and period market in the third quarter by the Company’s VLCCs, Suezmax tankers and Suezmax OBO carriers were $12,300, $10,500 and $33,700, respectively, compared with $31,000, $16,200 and $28,100, respectively, in the preceding quarter. The spot earnings for the Company’s double hull VLCCs and Suezmax vessels were $13,300 and $10,500, respectively, compared with $31,500 and $16,200, respectively, in the preceding quarter. The Orion Suezmax pool had spot earnings of $11,100 compared with $17,400 in the second quarter.
The contingent rental expense relates to the amended charter parties with Ship Finance International Limited (“Ship Finance”) and the amended charter parties for four leased vessels and is based on the difference between the renegotiated rates and the actual TCE revenues up to the original contract rates.
Ship operating expenses increased by $1.2 million compared with the preceding quarter mainly due to an increase in running costs.
Charter hire expenses decreased by $1.2 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 $23.5 million in the third quarter of which $5.6 million relates to the Company’s subsidiary Independent Tankers Corporation Limited (“ITCL”).
Frontline announces a net loss attributable to the Company of $66.2 million for the nine months ended September 30, 2012, equivalent to a loss per share of $0.85. The average daily TCEs earned in the spot and period market in the nine months ended September 30, 2012 by the Company’s VLCCs, Suezmax tankers and Suezmax OBO carriers were $23,200, $15,500, and $33,300, respectively, compared with $24,000, $14,200 and $35,300, respectively, in the nine months ended September 30, 2011. The spot earnings for the Company’s double hull VLCCs and Suezmax vessels were $23,700 and $15,500, respectively, in the nine months ended September 30, 2012. The Orion Suezmax pool had spot earnings of $15,300 per day.
As of September 30, 2012, the Company had total cash and cash equivalents of $164.5 million and restricted cash of $75.7 million. Restricted cash includes $74.2 million relating to deposits in ITCL.
The Company estimates average cash cost breakeven rates for the remainder of 2012 on a TCE basis for its VLCCs and Suezmax tankers of approximately $23,400 and $16,200, respectively.
Fleet Development
In August, 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 was terminated on October 15, 2012. The Company made 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.
In September 2012, the Company agreed with Nordic American Tankers Ltd (“NAT”) that Frontline’s nine Suezmax vessels will leave the Orion Suezmax pool due to Frontline’s wish to be more flexible in the operation of its vessels. NAT will acquire Frontline’s 50 percent shareholding in Orion Tankers Ltd., the pool manager, at its nominal book cost effective January 1, 2013.
In October, 2012, the Company announced that it had agreed with Ship Finance to terminate the long term charter party for the OBO carrier Front Driver and that Ship Finance had simultaneously sold the vessel. The charter party is expected to terminate in late November 2012. Frontline will make a compensation payment to Ship Finance of approximately $0.5 million for the early termination of the charter. The transaction will reduce the Company’s obligations under capital leases by approximately $1.1 million and the Company expects to record a loss of approximately $0.1 million.
In October, 2012 the Company terminated the bareboat charters on the two single hull VLCCs Ticen Ocean (renamed Front Lady) and Ticen Aries (renamed Edinburgh) and the vessels will be delivered to the buyers (as announced in September, 2011) in the end of November 2012 and January 2013, respectively.
Newbuilding Program
As of November 28, 2012, the Company’s newbuilding program comprised two Suezmax tankers, and the Company was committed to make newbuilding installments of $94.2 million with expected payments of $6.3 million in 2012 and $87.9 million in 2013.
Corporate
The Board of Directors has decided not to declare a dividend for the third quarter of 2012.
A resolution was approved at the Company’s 2012 Annual General Meeting on September 21, 2012 such that the share premium account was reduced from $225.8 million to nil and the amount resulting from the reduction be credited to the contributed surplus account with immediate effect.
77,858,502 ordinary shares were outstanding as of September 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 third quarter of 2012 was WS 36, representing a decrease of approximately WS 19 points from the second quarter of 2012 and a decrease of approximately WS 22 points from the third quarter of 2011. Present market indications are approximately $11,000 per day in the fourth quarter of 2012.
The market rate for a Suezmax trading on a standard ‘TD5’ voyage between West Africa and Philadelphia in the third quarter of 2012 was WS 59.5, representing a decrease of approximately WS 13.5 points from the second quarter of 2012 and a decrease of WS 10 points from the third quarter of 2011. Current market forward rates indicate TD5 fourth quarter returns in line with third quarter.
Bunkers at Fujairah averaged $650/mt in the third quarter of 2012 compared to $662/mt in the second quarter of 2012. Bunker prices varied between a low of $590/mt on July 2 and a high of $697/mt on September 4.
The International Energy Agency’s (“IEA”) November 2012 report stated an OPEC oil production, including Iraq, of 31.4 million barrels per day (mb/d) in the third quarter. This was unchanged from the previous quarter.
The IEA estimates that world oil demand averaged 90.1 mb/d in the third quarter of 2012, which is an increase of 1.3 mb/d compared to previous quarter and the IEA estimates that world oil demand will average approximately 89.7 mb/d in 2012, representing an increase of 0.9 percent or 0.8 mb/d from 2011. 2013 demand is expected to be 90.5 mb/d.
The VLCC fleet totalled 617 vessels at the end of the third quarter of 2012, up from 610 vessels at the end of the previous quarter. Ten VLCCs were delivered during the quarter, three were removed. The order book counted 91 vessels at the end of the third quarter, down from 95 orders from the previous quarter. The current order book represents approximately 15 percent of the VLCC fleet. According to Fearnley’s, the single hull fleet is 22 vessels, one less than previous quarter.
The Suezmax fleet counts 462 vessels at the end of the third quarter, up from 459 vessels at the end of the previous quarter. Ten vessels were delivered during the quarter whilst seven were removed. The order book counted 63 vessels at the end of the third quarter, down from 79 vessels at the end of the previous quarter. The current order book represents 14 percent of the total fleet. According to Fearnley’s, the single hull fleet stands unchanged at nine vessels.
Strategy and Outlook
The tanker market has shown a strong negative development in the last four years. Several tanker companies are already experiencing severe problems. If the weak market continues it is likely to lead to significant financial problems for the whole tanker industry. We have recently experienced that VLCC spot rates have risen, but spot rates for Suezmax and Aframax tankers have seen little movement.
Consensus is that the recent rate spike could be short lived and that recovery in the crude tanker market could take some time. In order for sustainable recovery to happen substantial scrapping of vessels must take place.
Frontline will continue to remain cautious 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 fourth quarter and the current outlook, the Board expects the operating result in the fourth quarter to show some improvement compared with the third quarter.
The full report is available for download in the link enclosed
The Board of Directors
Frontline Ltd.
Hamilton, Bermuda
November 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.