FRNT - Third Quarter and Nine Months 2012 Results

Highlights

• Frontline 2012 reports a net loss of $1.0 million and a loss per share of $0.01 for the third quarter of 2012. 

• Frontline 2012 reports net income of $7.4 million and earnings per share of $0.06 for the nine months ended September 30, 2012. 

• In August 2012, the Company concluded newbuilding contracts for two 83,000 Cbm LPG Carriers ("VLGCs") and secured four optional contracts.  

• In September 2012, the Company exercised two of the four VLGC newbuilding options and secured additional two options.  

• In September 2012, the Company cancelled the first of the five VLCC newbuilding contracts at Jinhaiwan ship yard due to the excessive delay compared to the contractual delivery date.  

Introduction

Frontline 2012 Ltd. (the "Company" or "Frontline 2012") is a commodity shipping company incorporated in Bermuda on December 12, 2011, which owns a total of ten crude oil tankers, 24 newbuilding contracts and four option contracts within the crude oil, petroleum product and Liquefied Petroleum Gas ("LPG") markets. The Company's sailing fleet is one of the youngest in the industry and currently consists of six very large crude carriers, or VLCCs, and four Suezmax tankers, operating in the spot and the period markets. The largest shareholder is Hemen Holding Ltd. ("Hemen") with a shareholding of approximately 51 percent.

Third Quarter and Nine Months 2012 Results  

Frontline 2012 announces a net loss of $1.0 million and a loss per share of $0.01 for the third quarter of 2012. Frontline 2012 announces net income of $7.4 million and earnings per share of $0.06 for the nine months ended September 30, 2012.

The average daily time charter equivalents ("TCEs") earned in the spot and period market in the third quarter by the Company's VLCCs and Suezmax tankers were $25,100 and $10,400, respectively, compared with $32,700 and $17,600, respectively, in the preceding quarter. The spot earnings for the Company's VLCC and Suezmax tankers were $23,100 and $10,400, respectively, compared with $34,800 and $17,600, respectively, in the preceding quarter.

As of September 30, 2012, the Company had cash and cash equivalents of $184.6 million compared with $219.2 million as of June 30, 2012. The Company generated $9.2 million in cash from operating activities and used $43.5 million in investment activities.

The Company has prepaid bank debt repayments for the year 2012 in exchange for a one year payment holiday in 2013. Following this the estimated average cash cost break even rates for the remainder of 2012 on a TCE basis for its VLCCs and Suezmax tankers are approximately $14,900 and $13,800, respectively.

Newbuilding Program

In August 2012, the Company concluded newbuilding contracts for two VLGCs and secured four optional contracts. In September 2012, the Company exercised two of these four VLGC newbuilding options and secured another two VLGC newbuilding options. Frontline 2012 currently has four VLGC options remaining with the yard.

The deliveries of the ordered VLGCs are expected to take place in 2014. The deliveries of the optional VLGCs are expected to take place in 2014 and 2015 if options are exercised. Hemen will be responsible for the performance guarantees towards the yard on these contracts.

In September 2012, the Company cancelled the first  of the five VLCC newbuilding contracts at Jinhaiwan ship yard due to the excessive delay compared to the contractual delivery date. Unfortunately, the yard has referred the matter to arbitration, however the Board is confident the Company has a strong case. The Company's claim towards the yard is secured by refund guarantees.

As of November 28, 2012, the Company's newbuilding program comprised 16 newbuildings within the crude oil and petroleum product markets, four VLGCs and four VLCCs. Total installments of $317.0 million have been paid and the remaining installments to be paid amount to $935.0 million.

Corporate

156,000,000 ordinary shares were outstanding as of September 30, 2012, and the weighted average number of shares outstanding for the quarter was 156,000,000.

The Market

Crude

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 Q4 returns in line with Q3.

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 compared to the second quarter of 2012.

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 last 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.

Product

According to the IEA, gasoil demand as a whole is expected to expand more rapidly than oil demand as a whole with growth of 1.1 percent in 2012 and 1.4 percent in 2013. Industrial growth in emerging markets, power generation in non OECD countries and shift towards diesel for transportation combined with stricter environmental regulations enhances this increase of gasoil demand. Despite clear signs that Chinese economy is slowing, product demand picked up in the second quarter of 2012. July 2012 numbers are showing an increase of 2.2 percent year-on-year which is the strongest growth since March 2012. Robust gasoline demand growth of 16.4 percent (to 2.0 mb/d) led the way, supported by still rapidly expanding vehicle usage. Petrochemical demand supported 12.5 percent growth in naphtha consumption to 0.5 mb/d.

Growing reliance on international trade for product supply is spreading oil supply risk from the upstream to the downstream. Increased product market integration means consumers in all regions are increasingly exposed to local shortfalls in refining or product distribution, even as they remain exposed to traditional crude supply disruption risk. This will be even more so when supply/demand product balances start to tighten again.

The MR fleet totalled 1,503 vessels at the end of the third quarter of 2012, down from 1,504 vessels at the end of the previous quarter. The orderbook counted 143 vessels at the end of the third quarter, which represents approximately ten percent of the MR fleet. The LR2 fleet totalled 216 vessels at the end of the third quarter of 2012, up from 214 vessels at the end of the previous quarter. The order book counted ten vessels at the end of the third quarter. The current order book represents approximately 4.7 percent of the LR2 fleet.

LPG

2011 was one of the years with the largest year-on-year increase in VLGCs with an increase of 11 percent compared   to a total of 34.2m tones in 2010. AG export increased by 3.5 million tons, Algerian exports recovered by an increase of 0.7m tons and USG exports increased by 0.5m tons.

IEA expects LPG to retain healthy growth. That includes ethane which is expected to grow by 1.0 percent in 2012 (to 9.3 mb/d) and accelerating to 2 percent in 2013 (to 9.5 mb/d) due to that petrochemical usage continues to expand. In Japan total oil demand increased by 3.7 percent year-on-year in the second quarter of 2012 of which LPG led the increase with 16.3 percent growth.

Total LPG exports are expected to reach 35.9million tons in 2012, an increase of 4.9 percent year-on-year. The growth is foremost driven by Quatar and UAE increase of 1.0 million tons and 0.5 million tons, respectively. According to Fearngas, exports are expected to remain unchanged in 2013, but increase by 11.1 percent in 2014 and 8.5 percent in 2014.

The VLGC fleet (60,000+ Cbm) totalled 144 vessels at the end of the third quarter of 2012, an increase of one vessel from the previous quarter. The order book counted 20 vessels at the end of the third quarter, which represents 13.9 percent of the VLGC fleet.

Strategy and Outlook

The Company's strategy is to create the leading global commodity shipping company within three years.

We currently see newbuilding prices in several markets at historically low levels, close to or in some cases even lower than the shipyards all-in construction cost. This creates an attractive risk/reward balance and interesting opportunities. The dramatic differential in fuel efficiency between the next newbuilding generation and the existing fleet further highlights this opportunity.

The Company now holds four VLGC newbuilding contracts and four optional contracts. The high growth in LPG production, combined with a low newbuilding orderbook and historically low new building prices for fuel efficient tonnage creates a unique entry opportunity to and the Board is hopeful that Frontline 2012 can be one of the major players in this market within three years.

The Board still sees a challenging supply / demand situation for several of the commodity shipping markets. This is particularly the case for the crude oil tanker market as a consequence of the combined VLCC and Suezmax fleet increasing by approximately 98 percent between 2004 and 2012 without a similar increase in demand. Consensus is that recovery in the crude tanker market may take some time and in order for recovery to happen a substantial scrapping must take place.

Frontline 2012's current operating fleet consists of VLCCs and Suezmaxes. Based on results achieved so far in the fourth quarter the Board expects the operating result in the fourth quarter to be in line with the third quarter.

Frontline 2012's growth strategy and the current weak market will limit the dividend capacity in the short term. However, the Board sees clear potential from asset appreciation. The Company is currently working with several attractive proposals in order to increase the asset base further.

The full report is available for download in the link enclosed.

The Board of Directors
Frontline 2012 Ltd.
Hamilton, Bermuda
November 28, 2012

Questions should be directed to:
Jens Martin Jensen: Chief Executive Officer, Frontline Management AS
[phone]
Inger M. Klemp: Chief Financial Officer, Frontline Management AS
[phone]

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 Ltd's management's examination of historical operating trends. Although Frontline Ltd 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 2012 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.

3rd quarter 2012 results

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Source: Frontline 2012 Ltd. via Thomson Reuters ONE

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