Frontline Ltd. (the "Company" or "Frontline"), today reported
unaudited results for the period ended September 30, 2015.
Highlights
- Frontline achieved net income attributable to the Company of
$17.4 million, or $0.09 per share, for the third quarter of 2015
and net income attributable to the Company of $65.9 million, or
$0.42 per share, for the nine months ended September 30, 2015.
- The long-term charters for the 1995-built Suezmax tankers,
Front Glory and Front Splendour, were terminated in September and
October, respectively. The Company received compensation payments
of $2.2 million and $1.3 million, respectively, for the termination
of the charters.
- In November, the Company agreed to terminate the long-term
charter for the 1998-built Suezmax tanker, Mindanao. The
charter is expected to terminate in the fourth quarter of
2015. The Company expects to receive a compensation payment
of approximately $3.3 million for the termination of the
charter.
- In July 2015, the Company and Frontline 2012 Ltd entered into
an agreement and plan of merger. Shareholder meetings of each of
Frontline and Frontline 2012 will be held on November 30, 2015 to
vote to approve the Merger Agreement.
- Assuming shareholder approval and completion of the merger, the
Board of Directors of Frontline has recommended implementing a
dividend strategy to distribute quarterly dividends to shareholders
equal to or close to EPS adjusted for non recurring items. The
timing and amount of dividends is at the discretion of the Board of
Directors. The first dividend for the merged company is expected to
be declared and paid in December 2015.
- November 23, 2015 Frontline entered into an agreement to
purchase two 157,500 dwt Suezmax tanker newbuilding contracts from
Golden Ocean Group Limited at a purchase price of $55 million per
vessel. The newbuilding contracts are with New Times Shipbuilding
Co. Ltd. in China and the vessels are expected to be delivered in
the first quarter of 2017.
Robert Hvide Macleod, Chief Executive Officer of
Frontline Management AS commented:
"We are very pleased to report our strongest third quarter
since 2008 with net income attributable to the Company of $17.4
million, or $0.09 per share.
The strength of the tanker market was driven
primarily by high demand for low priced oil, a dynamic which
continued from the second quarter. The high demand for oil has led
to congestion in key ports around the world, which creates more
demand for tanker vessels. Also of note, ballast speeds
increased during the third quarter, returning to normal
levels. We believe that this is a strong sign that capacity
is being absorbed. Indeed, current fleet utilization is at
levels not seen since 2009.
The average daily time charter equivalents
("TCEs") earned through a combination of spot and time charters in
the third quarter by the Company's VLCCs and Suezmax tankers were
$45,600 and $28,100, respectively. Several of our tankers were
fixed for positioning voyages in the third quarter, which reduced
average TCEs. The positioning voyages were made to
strategically position the vessels ahead of the fourth quarter,
which in the past has yielded seasonally higher rates.
For our vessels employed in the spot market, we
have covered 80% of our VLCC operating days in the fourth quarter
at TCE rates of approximately $68,500 and 88% of our Suezmax
operating days at TCE rates of approximately $42,500. Rates
for vessels on time charters are naturally at lower levels than
those that can be achieved on a spot basis in this strong market."
Fleet Development
As of September 30, 2015, Frontline's fleet
consisted of 14 VLCC and eight Suezmax tankers with an aggregate
carrying capacity of 5.4 million dwt. Of these, two Suezmax
tankers are owned by the Company and the remaining 20 vessels are
chartered in from third parties. Additionally, the Company has 6
VLCCs, eight Suezmax tankers, 10 LR2 Aframax tankers, and 15 MR2
Handysize tankers under commercial management.
The majority of the Company's leased vessels are
leased from Ship Finance International Ltd. ("Ship Finance") under
long term charter agreements. In June 2015, the Company and
Ship Finance agreed to amend the long term charter agreements on 12
VLCCs and five Suezmaxes for the remaining average charter period
of 7.7 years. Under the new agreement, which took effect July
1, 2015, the daily time charter rates for VLCCs and Suezmaxes were
decreased to $20,000 and $15,000, respectively. Daily
operating expenses payable by Ship Finance for all vessels were
increased from $6,500 to $9,000. In connection with the
decrease in daily time charter rates and the increase in daily
operating expenses, the Company and Ship Finance agreed to revise
the profit split above the daily time charter rates to 50%/50%, and
55 million shares of Frontline were issued to Ship Finance. Please
refer to Form 6-K filed by the Company with the Securities and
Exchange Commission on June 1, 2015 for further details on the
amended charter structure.
In August 2015, the Company agreed with Ship
Finance to terminate the long term charter for the 1995-built
Suezmax tanker Front Glory. The charter with Ship Finance
terminated in September. The Company received a compensation
payment of $2.2 million from Ship Finance for the termination of
the charter.
In September 2015, the Company agreed with Ship
Finance to terminate the long term charter for the 1995-built
Suezmax tanker Front Splendour, which has surveys due at the end of
this year. The charter with Ship Finance terminated in October. The
Company received a compensation payment of $1.3 million from Ship
Finance for the termination of the charter.
In November 2015, the Company agreed with Ship
Finance to terminate the long term charter for the 1998-built
Suezmax tanker Mindanao. The charter with Ship Finance is expected
to terminate in the fourth quarter of 2015. The Company will
receive a compensation payment of approximately $3.3 million from
Ship Finance for the termination of the charter.
After giving effect to these terminations, the
vessels on charter from Ship Finance will be reduced to 12 VLCCs
and two Suezmax tankers. November 23, 2015 Frontline entered into
an agreement to purchase two 157,500 dwt Suezmax tanker newbuilding
contracts from Golden Ocean Group Limited at a purchase price of
$55 million per vessel. The newbuilding contracts are with New
Times Shipbuilding Co. Ltd. in China and the vessels are expected
to be delivered in the first quarter of 2017.
The Market
World oil supply currently is at its highest
level ever at nearly 97 million barrels per day. This, along
with a strong demand for inexpensive crude oil, has led to the
tanker fleet surpassing 85% utilization, the highest level seen in
many years and a sign of a healthy market, assuming continuation of
these levels of demand. Increasing eastbound cargoes and new
refinery projects in Asia are keeping tonne miles high, a trend the
Company believes will continue. Additionally, forced storage
of oil on tankers due to a high supply of cargoes is contributing
to a strong market.
The average rate for VLCCs trading on a standard
'TD3' voyage between the Arabian Gulf and Japan in the third
quarter of 2015 was WS 55, or a daily time charter equivalents
("TCEs") of $58,002, and the average rate for a Suezmax trading on
a standard 'TD20' voyage between West Africa and Rotterdam in the
third quarter of 2015 was WS 73, or a TCE of $35,274. These average
rates were slightly lower than the rates in the previous
quarter.
The VLCC fleet totalled 645 vessels at the end
of the quarter, and the Suezmax fleet totalled 450 vessels.
The order book for tankers represents approximately 17% of the
tanker fleet, although a relatively small portion of the order book
is expected to be delivered within the next six to twelve
months. Given the strength of the market, only a limited
amount of scrapping activity has occurred.
Corporate update
On July 2, 2015, Frontline and Frontline 2012
Ltd. ("Frontline 2012") announced that they have entered into an
agreement and plan of merger (the "Merger Agreement"), pursuant to
which the two companies have agreed to enter into a merger
transaction, with Frontline 2012 becoming a wholly-owned subsidiary
of Frontline. Frontline filed a registration statement with the
United States Securities and Exchange Commission ("SEC") on August
24, 2015 covering the common shares to be issued by Frontline to
Frontline 2012's shareholders in the merger. The registration
statement was declared effective by the SEC on November 9, 2015.
The shareholders' meetings of each of Frontline and Frontline 2012
are scheduled to be held November 30, 2015. Assuming approval by
the shareholders of Frontline and Frontline 2012, the transaction
will be accounted for as a business combination using the
acquisition method of accounting under the provisions of ASC 805,
with Frontline 2012 selected as the accounting acquirer under this
guidance.
Third Quarter and Nine Months 2015 Results
The Company generated net income attributable to
the Company of $17.4 million, or $0.09 per share, in the third
quarter, compared with net income attributable to the Company of
$17.4 million, or $0.11 per share, for the previous quarter. The
Company recorded a gain of $1.8 million in the third quarter from
the termination of the lease for the Front Glory.
The TCEs earned in the spot and period market in
the third quarter by the Company's VLCCs and Suezmax tankers were
$45,600 and $28,100, respectively, compared with $50,600 and
$33,800 in the previous quarter. The spot earnings for the
Company's VLCCs and Suezmax vessels were $49,100 and $28,700,
respectively compared with $53,600 and $38,000 in the preceding
quarter.
Total operating expenses in the third quarter
were in line with the previous quarter. Dry docking costs fell by
$2.2 million compared with the previous quarter. Two vessels
were dry docked in the third quarter compared with four in the
previous quarter.
Contingent rental expense represents amounts
accrued following changes to the charter parties related to the
four vessels leased from German limited partnerships and the
vessels leased from Ship Finance. Contingent rental expense in the
third quarter includes $16.6 million attributable to the amended
lease agreements with Ship Finance, which took effect on July 1,
2015.
Net income attributable to the Company was $65.9
million, or $0.42 per share, for the nine months ended September
30, 2015. The average daily TCEs earned by the Company's VLCCs and
Suezmax tankers in the spot and period market in the nine months
ended September 30, 2015 were $48,500 and $31,700, respectively,
compared with $23,800 and $19,300, respectively, in the nine months
ended September 30, 2014. The spot earnings for the Company's VLCCs
and Suezmax vessels were $51,600 and $34,000, respectively, in the
nine months ended September 30, 2015 compared with $23,000 and
$19,700, respectively, in the nine months ended September 30,
2014.
The Company estimates that average daily total
cash cost breakeven rates for the remainder of 2015 will be
approximately $27,700 and $22,100 for the Company's VLCCs and
Suezmax tankers, respectively.
Strategy and Outlook
The shareholders' meetings of each of Frontline
and Frontline 2012 to vote on the announced Merger Agreement are
scheduled to be held on November 30, 2015.
Assuming shareholder approval and completion of
the merger, Frontline together with its subsidiary Frontline 2012
(together, the "Surviving Company") will have a fleet of
approximately 90 vessels, including vessels on commercial
management, vessels on time charter in and newbuildings due for
delivery in the next 24 months. With a large modern fleet, a
strong balance sheet and attractive cash break even rates, the
Company believes that the Surviving Company should be equally well
positioned to generate significant free cash in a strong market and
to sustain a weak market. The Company believes the Surviving
Company will be well positioned to grow through acquisition and
consolidation opportunities.
Assuming shareholder approval and completion of
the merger, the Board of Directors of Frontline has recommended
implementing a dividend strategy to distribute quarterly dividends
to shareholders equal to or close to EPS adjusted for non recurring
items. The timing and amount of dividends is at the discretion of
the Board of Directors. The first dividend for the merged company
is expected to be declared and paid in December 2015.
Conference Call and Webcast
On Tuesday November 24, 2015 at 9:00 A.M. ET
(3:00 P.M. CET), the Company's management will host a conference
call to discuss the results.
Participants should dial into the call 10
minutes before the scheduled time using the following numbers:
International Dial-In/UK
Local
+44(0)20 3427 0503 Norway Toll
Free
800 56054 UK Toll
Free
0800 279 4841 USA Toll
Free
1877 280 2342 USA
Local
+1212 444 0895
Conference ID: 8145275
Presentation materials and a webcast of the
conference call may be accessed on the Company's website,
www.frontline.bm, under the 'Webcast' link.
A replay of the conference call will be
available for seven days following the live call. The
following numbers may be used to access the telephonic replay:
International Dial-In/UK
Local
+44 (0)20 3427 0598 Norway
Dial-In
+47 2100 0498 USA
Local
+1 347 366 9565 National free phone - United
Kingdom
0800 358 7735 National free phone - United States of America 1866
932 5017 Replay Access
Number
8145275
Important Information for Investors and
Shareholders
This communication does not constitute an offer
to sell or the solicitation of an offer to buy any securities or a
solicitation of any vote or approval. In connection with the
proposed transaction between Frontline and Frontline 2012,
Frontline has filed relevant materials with the Securities and
Exchange Commission (the "SEC"), including a registration statement
of Frontline on Form F-4 (File No. 333-206542), initially filed on
August 24, 2015 and subsequently amended, that includes a joint
proxy statement of Frontline 2012 and Frontline that also
constitutes a prospectus of Frontline. The registration statement
was declared effective by the SEC on November 9, 2015. A definitive
joint proxy statement/prospectus has been mailed to shareholders of
Frontline 2012 and Frontline. INVESTORS AND SECURITY HOLDERS OF
FRONTLINE 2012 AND FRONTLINE ARE URGED TO READ THE JOINT PROXY
STATEMENT/PROSPECTUS AND OTHER DOCUMENTS THAT WILL BE FILED WITH
THE SEC CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE
BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Investors
and security holders will be able to obtain free copies of the
registration statement and the joint proxy statement/prospectus
(when available) and other documents filed with or furnished to the
SEC by Frontline through the website maintained by the SEC at
http://www.sec.gov. Copies of the documents filed with or furnished
to the SEC by Frontline will be available free of charge on
Frontline's website at http://www.frontline.bm. Additional
information regarding the participants in the proxy solicitations
and a description of their direct and indirect interests, by
security holdings or otherwise, will be contained in the joint
proxy statement/prospectus and other relevant materials to be filed
with or furnished to the SEC when they become available.
Forward-Looking Statements
Matters discussed in this press release may
constitute forward-looking statements. Forward-looking statements
include statements concerning plans, objectives, goals, strategies,
future events or performance, and underlying assumptions and other
statements, which are other than statements of historical facts.
Words, such as, but not limited to "believe," "anticipate,"
"intends," "estimate," "forecast," "project," "plan," "potential,"
"may," "should," "expect," "pending" and similar expressions
identify forward-looking statements.
Forward-looking statements include, without
limitation, statements regarding:
- The effectuation of the transaction between Frontline and
Frontline 2012 described above;
- The delivery to and operation of assets by Frontline;
- Frontline's and Frontline 2012's future operating or financial
results;
- Future, pending or recent acquisitions, business strategy,
areas of possible expansion, and expected capital spending or
operating expenses; and
- Tanker market trends, including charter rates and factors
affecting vessel supply and demand.
The forward-looking statements in this press
release are based upon various assumptions, many of which are
based, in turn, upon further assumptions, including without
limitation, examination of historical operating trends, data
contained in records and other data available from third parties.
Although Frontline believes that these assumptions were reasonable
when made, because these assumptions are inherently subject to
significant uncertainties and contingencies which are difficult or
impossible to predict and are beyond the control of Frontline,
Frontline cannot assure you that they, or the combined company,
will achieve or accomplish these expectations, beliefs or
projections. In addition to these important factors, other
important factors that could cause actual results to differ
materially from those discussed in the forward-looking statements,
including the strength of world economies and currencies, general
market conditions, including fluctuations in charter rates and
vessel values, changes in demand for tanker shipping capacity,
changes in the combined company's operating expenses, including
bunker prices, drydocking and insurance costs, the market for the
combined company's vessels, availability of financing and
refinancing, 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, vessels breakdowns and instances
of off-hires and other factors. Please see Frontline's filings with
the SEC and the Prospectus for a more complete discussion of these
and other risks and uncertainties. The information set forth herein
speaks only as of the date hereof, and Frontline disclaims any
intention or obligation to update any forward-looking statements as
a result of developments occurring after the date of this
communication.
The Board of Directors Frontline Ltd. Hamilton,
Bermuda November 23, 2015
Questions should be directed to:
Robert Hvide Macleod: Chief Executive Officer,
Frontline Management AS +47 23 11 40 84
Inger M. Klemp: Chief Financial Officer,
Frontline Management AS +47 23 11 40 76
This information is subject to the disclosure requirements
pursuant to section 5-12 of the Norwegian Securities Trading
Act.
3rd Quarter 2015 Results
http://hugin.info/182/R/1968929/719593.pdf
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