FRO - Second Quarter and Six Months 2013 Results
August 28, 2013 - HAMILTON, BERMUDA
* Frontline reports a net loss attributable to the Company of $120.3million for the second quarter of 2013, equivalent to a loss per share of$1.54.
* Frontline reports a net loss attributable to the Company of $139.0million for the six months ended June 30, 2013, equivalent to a loss pershare of $1.79.
* Frontline records a vessel impairment loss of $81.3 million in the threeand six months ended June 30, 2013.
* Frontline will not pay a dividend for the second quarter of 2013.
* Frontline has issued 985,084 new shares following the launch of an ATM("at the market") offering in June 2013.
Second Quarter and Six Months 2013 Results
The Board of Frontline Ltd. (the "Company" or "Frontline") announces a netlossattributable to the Company of $120.3 million in the second quarter,equivalentto a loss per share of $1.54, compared with a net loss of $18.8 millionfor thefirst quarter, equivalent to a loss per share of $0.24. The netlossattributable to the Company in the second quarter includes a gain onsale ofassets and amortization of deferred gains of $0.5 million being thedeferredgain relating to the sale and leaseback of DHT Eagle (ex Front Eagle).The netloss attributable to the Company in the first quarter included a gain onsale ofassets and amortization of deferred gains of $9.2 million, which included againof $7.6 million on the termination of the charter party for the singlehullVLCC, Titan Aries (Ex Edinburgh), and a deferred gain of $1.8 millionrelatingto the sale and leaseback of the VLCC DHT Eagle.
The Company has recorded a vessel impairment loss of $81.3 million in thethreeand six months ended June 30, 2013. This loss relates to three vesselsleasedfrom Ship Finance (Front Century, Front Champion and Golden Victory).Impairmentlosses are taken when events or changes in circumstances occur thatcause theCompany to believe that future cash flows for an individual vessel will belessthan its carrying value and not fully recoverable. In suchinstances animpairment charge is recognized if the estimate of the undiscounted cashflowsexpected to result from the use of the vessel and its eventualdisposition isless than the vessel's carrying amount.
Following the termination of the lease on the Company's final OBO carrier,FrontGuider, in the first quarter the results of the OBO carriers have beenrecordedas discontinued operations in accordance with U.S. generally acceptedaccountingprinciples. The Company reports a net loss from discontinued operations of$0.5million in the second quarter compared with a net loss fromdiscontinuedoperations of $0.5 million in the preceding quarter.
The average daily time charter equivalents ("TCEs") earned in thespot andperiod market in the second quarter by the Company's VLCCs and Suezmaxtankerswere $14,100 and $13,800, respectively, compared with $17,000 and$14,500,respectively, in the preceding quarter. The spot earnings for theCompany'sdouble hull VLCCs and Suezmax vessels were $11,200 and $13,800,respectively,compared with $14,600 and $14,500, respectively, in the preceding quarter.
Contingent rental expense relates to the amended charter parties withShipFinance International Limited ("Ship Finance") and the amended charterpartiesfor four other leased vessels and is based on the differencebetween therenegotiated rates and the actual TCE revenues up to the originalcontractrates. Contingent rental expense in the second quarter and the precedingquarteris income as the contingent rental expense relating to the four non-ShipFinancevessels is calculated quarterly on a cumulative basis over the four yearperiodto December 31, 2015 and the accrued contingent rental expense at June 30,2013and March 31, 2013 was lower than the accrued contingent rentalexpense atDecember 31, 2012.
Ship operating expenses increased by $5.9 million compared with theprecedingquarter due to an increase in dry docking costs.
Charter hire expenses decreased by $3.8 million compared with theprecedingquarter as a result of redelivery of the chartered-in VLCC DHT Eagleon May8, 2013. Following this redelivery, the Company no longer has anyvesselschartered-in under operating leases.
Interest expense, net of capitalized interest, was $22.9 million in thesecondquarter of which $6.1 million relates to the Company's subsidiaryIndependentTankers Corporation Limited ("ITCL").
Frontline announces a net loss attributable to the Company of $139.0million forthe six months ended June 30, 2013, equivalent to a loss per share of$1.79. Theaverage daily TCEs earned in the spot and period market in the six monthsendedJune 30, 2013 by the Company's VLCCs and Suezmax tankers were$15,600 and$14,100, respectively, compared with $28,200 and $18,000, respectively,in thesix months ended June 30, 2012. The spot earnings for the Company's doublehullVLCCs and Suezmax vessels were $12,900 and $14,100, respectively, inthe sixmonths ended June 30, 2013 compared with $28,300 and $18,000,respectively, inthe six months ended June 30, 2012.
As of June 30, 2013, the Company had total cash and cash equivalents of$83.7million and restricted cash of $75.8 million. Restricted cash includes$73.6million relating to deposits in ITCL.
The Company estimates average total cash cost breakeven rates for theremainderof 2013 on a TCE basis for VLCCs and Suezmax tankers of approximately$25,000and $19,000, respectively.
In December 2012, the Company agreed to an early termination of the timecharterout contracts on the two OBO carriers, Front Viewer and FrontGuider, andreceived a compensation payment in December 2012 from the charterers forloss ofhire due to the early termination of $35.0 million. This amount wasrecorded inoperating revenues in 2012 and has now been recorded in the resultsfromdiscontinued operations. The Company also agreed with Ship Finance toterminatethe long term charter parties for these two OBO carriers. The charterparty forFront Viewer terminated in December 2012 and the charter party for theFrontGuider terminated in March 2013. The Company paid $23.5 million to ShipFinanceas compensation for the early termination of the charters and the estimatedlossof contingent rentals relating to the two vessels. The Company recorded alosson termination of the lease for Front Viewer of $16.5 million in thefourthquarter of 2012 and a vessel impairment loss of $14.2 million on theloss ontermination of the lease on Front Guider in March 2013. These losses havebeenrecorded in the results from discontinued operations.
In January 2013, the Company terminated the charter party for the singlehullVLCC Titan Aries and recognized a gain of $7.6 million in the firstquarter of2013.
In January 2013, BP Shipping gave twelve months notice of itsintention toterminate the bareboat charter for the VLCC British Progress from theCompany'ssubsidiary ITCL. Termination will take effect on February 2, 2014.
In February 2013, the Company agreed with Ship Finance to terminate thelongterm charter party between the companies for the Suezmax tanker, FrontPride,and Ship Finance simultaneously sold the vessel. The termination of thecharterparty took place on February 15, 2013 and the Company made a netcompensationpayment to Ship Finance of $2.1 million for the early termination of thecharterparty.
In March 2013, the VLCC Ulysses (ex Phoenix Voyager) was redelivered toITCL byChevron and the vessel commenced trading in the spot market.
In May 2013, the Company redelivered the chartered-in VLCC DHT Eagleto itsowners.
As of June 30, 2013 the Company was committed to make newbuildinginstallmentsof $87.9 million with expected payment of $6.2 million in 2013 and $81.7millionin 2014.
In January 2013, the Company paid $6.0 million for 1,143,000 shares in aprivateplacement by Frontline 2012 of 59 million new ordinary shares at asubscriptionprice of $5.25 per share. Following the private placement, theCompany'sownership in Frontline 2012 was reduced from 7.9% to 6.3%. TheCompanyrecognized a gain on the dilution of its ownership of $5.2 million in thefirstquarter of 2013 in "share of income (losses) from associated companies".
In April 2013, Ms. Cecile Fredriksen and Mr. Tony Curry resigned fromtheirpositions as directors of the Company. One of the vacancies created bythesedepartures was filled by Georgina Sousa. Mrs. Sousa joined the Company asHeadof Corporate Administration in 2007. Mrs. Sousa is also a Director ofGolar LNGLimited, Golden Ocean Group Limited and Frontline 2012 Ltd.
At a special general meeting of shareholders held on May 8, 2013 theCompany'sshareholders approved a decrease in the par value of our ordinary sharesfrom$2.50 to $1.00 per share effective May 14, 2013.
In June 2013, the Company announced that it has entered into anequitydistribution agreement with Morgan Stanley & Co. LLC, ("Morgan Stanley")underwhich Frontline may, at any time and from time to time, offer andsell newordinary shares having aggregate sales proceeds of up to $40.0 millionthroughMorgan Stanley in an at-the-market ("ATM") offering.
The Company issued 655,552 new ordinary shares under that programduring themonth of June 2013. 78,514,054 ordinary shares were outstanding as ofJune30, 2013, and the weighted average number of shares outstanding for thequarterwas 77,916,110.
The market rate for a VLCC trading on a standard 'TD3' voyagebetween theArabian Gulf and Japan in the second quarter of 2013 was WS 37,representing anincrease of WS 2 points from the first quarter of 2013 and adecrease ofapproximately WS 18 points from the second quarter of 2012. The flatrateincreased by 9.1 percent from 2012 to 2013.
The market rate for a Suezmax trading on a standard 'TD5' voyage betweenWestAfrica and Philadelphia in the second quarter of 2013 was WS 54,representing adecrease of WS 3.5 points from the first quarter of 2013 and a decreaseof WS18 points from the second quarter of 2012. The flat rate increased by9.3percent from 2012 to 2013.
Bunkers at Fujairah averaged $614/mt in the second quarter of 2013compared to$633/mt in the first quarter of 2013. Bunker prices varied between ahigh of$640/mt on April 2(nd) and a low of $597/mt on June 28(th).
The International Energy Agency's ("IEA") August 2013 report stated anOPEC oilproduction, including Iraq, of 30.8 million barrels per day (mb/d) in thesecondquarter of 2013. This was an increase of 0.4 mb/d compared to the firstquarterof 2013.
The IEA estimates that world oil demand averaged 90.4 mb/d in the secondquarterof 2013, which is an increase of 0.5 mb/d compared to the previousquarter. IEAestimates that world oil demand in 2013 will be 90.8 mb/d,representing anincrease of 1.0 percent or 0.9 mb/d from 2012.
The VLCC fleet totalled 639 vessels at the end of the second quarter of2013, upfrom 634 vessels at the end of the previous quarter. 10 VLCCs weredeliveredduring the quarter, five were removed. The order book counted 57 vesselsat theend of the second quarter, down 10 from the previous quarter. The currentorderbook represents nine percent of the VLCC fleet. According toFearnleys, thesingle hull fleet is 15 vessels, two less than last quarter.
The Suezmax fleet totalled 448 vessels at the end of the second quarter, upfrom442 vessels at the end of the previous quarter. Six vessels weredeliveredduring the second quarter whilst none were removed. The order bookcounted 39vessels at the end of the second quarter which represents approximatelyeightpercent of the Suezmax fleet. According to Fearnley's, the single hullfleetstands unchanged at five vessels.
Strategy and Outlook
The Board is of the opinion that the tanker market is massivelyoversuppliedtoday and that it may take some time before a reasonable marketbalance isrestored and sustained recovery of the tanker market occurs. The Boardbelievesthat such a market balance and sustained recovery of the tanker marketwill bedependent on the extent of phase out of existing tonnage as well asglobalgrowth conditions.
Facing a market where tanker vessels are operated below cash cost breakevenrates, the Board is of the opinion that we as owners should seriouslyconsiderthe investment we have to make in vessels which are more than 15 yearsold inorder to take the vessels through special survey. Based on market ratesit islikely that these investments will be unprofitable and we will bebetter ofscrapping these vessels.
Frontline has two vessels coming up for special survey in the secondpart ofthis year. Based on no material improvement in the tanker market it isunlikelythat Frontline will invest in these vessels to continue trading. Ifsimilardecisions are taken by other owners, it is likely to reduce theoversupply inthe tanker market.
As of June 30, 2013 Frontline had total debt and lease obligationsexcludingdebt linked to ITCL of 1,135 million. This is composed of approximately$851million in lease obligations to Ship Finance, approximately $69 million inleaseobligations to German KGs and $215 million in convertible bond loan. Afullrepayment of this debt is to a large extent dependant on asignificantimprovement in tanker rates in the years to come. The Company has as ofJune30, 2013 no bank debt.
If the tanker market does not recover in the short term and no additionalequitycan be raised or assets sold there is a risk that Frontline willhaveinsufficient cash to satisfy liquidity requirements and to repay theexisting$225 million convertible bond loan at maturity in April 2015. Such asituationmight force a restructuring of the Company, including modifications ofcharterlease obligations and debt agreements.
The Board expects that the operating result excluding gains and losses inthethird quarter will be in line with the operating result in the secondquarterand that the free cash position of the Company will continue to decrease.
The Board is actively monitoring the situation and looking foropportunities torestructure the balance sheet and improve the Company's financial position.
Forward Looking Statements
This press release contains forward looking statements. Thesestatements arebased upon various assumptions, many of which are based, in turn, uponfurtherassumptions, including Frontline management's examination ofhistoricaloperating trends. Although Frontline believes that these assumptionswerereasonable when made, because assumptions are inherently subject tosignificantuncertainties and contingencies which are difficult or impossible topredict andare beyond its control, Frontline cannot give assurance that it willachieve oraccomplish these expectations, beliefs or intentions.
Important factors that, in the Company's view, could cause actualresults todiffer materially from those discussed in this press releaseinclude thestrength of world economies and currencies, general market conditionsincludingfluctuations in charter hire rates and vessel values, changes in demandin thetanker market as a result of changes in OPEC's petroleum productionlevels andworld wide oil consumption and storage, changes in the Company'soperatingexpenses including bunker prices, dry-docking and insurance costs,changes ingovernmental rules and regulations or actions taken by regulatoryauthorities,potential liability from pending or future litigation, generaldomestic andinternational political conditions, potential disruption of shippingroutes dueto accidents or political events, and other important factors describedfromtime to time in the reports filed by the Company with the UnitedStatesSecurities and Exchange Commission.
The full report is available for download in the link enclosed.
The Board of Directors
August 27, 2013
Questions should be directed to:Jens Martin Jensen:Chief Executive OfficerFrontline Management AS+47 23 11 40 99
Inger M. Klemp:Chief Financial OfficerFrontline Management AS+47 23 11 40 76
This information is subject of the disclosure requirements pursuant tosection5-12 of the Norwegian Securities Trading Act.
2nd Quarter 2013 Results:
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Source: Frontline Ltd. via Thomson Reuters ONE
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