FRNT - Frontline 2012 Ltd. Fourth Quarter and Full Year 2013 Results

Highlights

·         Frontline 2012 reports net income of $12.5 million and earnings per share of $0.05 for the fourth quarter of 2013.

·         Frontline 2012 reports net income of $69.5 million and earnings per share of $0.31 for the year ended December 31, 2013.

·         The Company announces a cash dividend for the fourth quarter of 2013 of $0.05 per share

Introduction

Frontline 2012 Ltd. (the "Company" or "Frontline 2012") is a commodity shipping company incorporated in Bermuda on December 12, 2011, which currently owns ten crude oil tankers, five MR product tankers and 63 fuel efficient newbuilding contracts within the crude oil, product, liquefied petroleum gas and dry bulk markets. The Company's sailing fleet is one of the youngest in the industry with an average age of 2.9 years.

The largest shareholder is Hemen Holding Ltd. with a shareholding of approximately 46 percent.

Fourth Quarter and Full Year 2013 Results

Frontline 2012 announces net income of $12.5 million and earnings per share of $0.05 for the fourth quarter of 2013 compared with net income of $23.9 million and earnings per share of $0.11 in the preceding quarter. Frontline 2012 recorded income from associated company (i.e. Avance Gas Holdings Limited ("AGHL")) of $8.8 million (including a gain on dilution of $6.5 million following AGHL's private placement in November) in the fourth quarter. Frontline 2012 recorded a gain of $27.0 million in the third quarter in connection with the cancellation of its third newbuilding contract at Jinhaiwan. The Company recognized a net gain of $1.0 million on the mark-to-market revaluation of interest rate swap agreements compared with a loss of $1.6 million in the third quarter.

The average daily time charter equivalents ("TCEs") earned in the spot and period market in the fourth quarter by the Company's VLCCs and Suezmax tankers were $27,300 and $19,200, respectively, compared with $21,100 and $11,900, respectively, in the preceding quarter. The spot earnings for the Company's VLCC and Suezmax tankers were $26,500 and $19,200, respectively, compared with $17,300 and $11,900, respectively, in the preceding quarter. The daily earnings for the Company's MR product tankers were $17,600 compared with $20,700 in the preceding quarter.

Frontline 2012 announces net income of $69.5 million and earnings per share of $0.31 for the year ended December 31, 2013 compared with net income of $8.1 million and earnings per share of $0.06 in the year ended December 31, 2012. Frontline 2012 recorded gains of $30.3 million and $27.0 million in the year ended December 31, 2013 in connection with the cancellation of its second and third newbuilding contracts, respectively, at Jinhaiwan. The Company also recognized income for associated company of $8.8 million and a net gain of $7.1 million on the mark-to-market revaluation of interest rate swap agreements in the year ended December 31, 2013.

The average daily TCEs earned in the spot and period market in the year ended December 31, 2013 by the Company's VLCCs and Suezmax tankers were $22,300 and $14,200, respectively, compared with $27,800 and $15,300, respectively, in the year ended December 31, 2012. The spot earnings for the Company's VLCC and Suezmax tankers were $19,200 and $14,200, respectively, compared with $27,500 and $15,300, respectively, in the year ended December 31, 2012.

The Company estimates average cash breakeven TCE rates for the remainder of 2014 for its VLCCs, Suezmax tankers and MR product tankers of approximately $25,400, $18,900 and $13,400, respectively.

Fleet Development

The Company took delivery of the MR product tankers, Front Avon, Front Dee, Front Clyde and Front Esk, on December 4, 2013, January 3, 2014 January 16 and February 14, 2014, respectively.

Newbuilding Program

In November 2013, the Company agreed to sell eight very large gas carriers or VLGC newbuildings to AGHL immediately following their delivery to the Company from the yard.  AGHL will pay $75.0 million for each newbuilding, of which $17.4 million has been paid upfront and $57.6 million will be paid upon delivery from the yard.

In 2012 and 2013 the Company cancelled all of the five newbuilding contracts at Jinhaiwan ship yard and has received a total refund of $144.6 million to date, of which $44.9 million has been used to repay debt. Total claims not yet received total $173.1 million, of which $44.9 million will be used to repay debt.

As of December 31, 2013, the Company's newbuilding program totalled 62 vessels (including the eight newbuildings sold to AGHL) and comprised 20 newbuildings within the crude oil and petroleum product markets, 34 Cape size vessels and eight VLGCs. Total installments of approximately $386 million have been paid and the remaining installments to be paid amounted to approximately $2,488 million. This includes installments paid of $57 million and remaining installments to be paid of $452 million relating to the eight newbuildings sold to AGHL.

Subsequent to December 31, 2013, the Company has taken delivery of three MR product tanker newbuildings and has negotiated and concluded four newbuilding contracts and the Company's newbuiding program currently comprises 63 newbuildings.

Frontline 2012 has eight newbuilding contracts with STX (Dalian) Shipbuilding Co., Ltd. ("STX Dalian") and further six newbuildings with STX Offshore & Shipbuilding (Korea) ("STX Korea"). STX Korea has subsequently subcontracted the latter vessels to STX Dalian. STX Dalian has encountered financial difficulties, and the construction has stopped. The Company is following the situation closely and will make every effort to ensure that STX Dalian deliver the newbuildings, which they are contractually committed to. There is however a substantial risk that these newbuildings will not be delivered according to the contracts and Frontline 2012 has therefore taken legal measures to be compensated for any loss caused by non delivery and is currently in an arbitration process with STX Dalian, mainly on the six ships, for which STX Korea are responsible.

Corporate

249,100,000 ordinary shares were outstanding as of December 31, 2013, and the weighted average number of shares outstanding for the quarter was 249,100,000.

The Company announces a cash dividend for the fourth quarter of 2013 of $0.05 per share. The ex-dividend date has been set to March 3, 2014, the record date is March 5, 2014 and the distribution date is on or about March 19, 2014.

In October 2013, the Company acquired six million shares in AGHL for $70.7 million and subsequently declared a special dividend equal to 12.5% of the shares in AGHL. $1.4 million of this dividend was paid in cash and $22.1 million was paid in AGHL shares. The Company recorded income from AGHL of $8.8 million (including a gain on dilution of $6.5 million following AGHL's private placement in November) in the fourth quarter. The Company holds a 22.89% interest in AGHL at December 31, 2013.

In February 2014, the Company prepaid bank debt in an amount of $112 million related to its ten crude oil tankers, which resulted in more lenient covenants in the loan agreements and reduced cash breakeven TCE rates.

The Market

Crude

The market rate for a VLCC trading on a standard 'TD3' voyage between the Arabian Gulf and Japan in the fourth quarter of 2013 was WS 53, representing an increase of WS 17 point from the third quarter of 2013 and WS10 above the fourth quarter of 2012. The flat rate increased by 9.1 percent from 2012 to 2013.

The market rate for a Suezmax trading on a standard 'TD5' voyage between West Africa and Philadelphia in the fourth quarter of 2013 was WS 66, representing an increase of WS 10 points from the third quarter of 2013 and an increase of WS 5 points from the fourth quarter of 2012. The flat rate increased by 9.3 percent from 2012 to 2013.

Bunkers at Fujairah averaged $615/mt in the fourth quarter of 2013 compared to $660/mt in the third quarter of 2013. Bunker prices varied between a high of $629/mt on November 1st and a low of $604.5/mt on October 2nd.

The International Energy Agency's ("IEA") February 2014 report stated an OPEC crude production, including Iraq, of 29.8 million barrels per day (mb/d) in the fourth of 2013. This was a decrease of 0.8 mb/d compared to the third quarter of 2013 due to Libyan production collapsing and Iraq not able to sustain the record levels seen earlier in the year. 

The IEA estimates that world oil demand averaged 92.2 mb/d in the fourth quarter of 2013, which is an increase of 0.2 mb/d compared to the previous quarter. IEA estimates that world oil demand in 2014 will be 92.6 mb/d, representing an increase of 1.4 percent or 1.3 mb/d from 2013.

The VLCC fleet totalled 623 vessels at the end of the fourth quarter of 2013, unchanged from the previous quarter. Seven VLCCs were delivered during the quarter, seven were removed. The order book increased by 26 vessels and counted 82 vessels at the end of the fourth quarter which represents 13 percent of the VLCC fleet. According to Fearnleys, the single hull fleet stands unchanged at one vessel.

The Suezmax fleet totaled 446 vessels at the end of the fourth quarter, down from 447 vessels at the end of the previous quarter. One vessel was delivered during the third quarter whilst two were removed. The order book counted 40 vessels at the end of the fourth quarter which represents approximately nine percent of the Suezmax fleet. According to Fearnley's, the single hull fleet is down to three vessels, two less than the previous quarter.

Product

The market rate for an MR trading on Standard "TC2" voyage between Rotterdam and New York in the fourth quarter of 2013 was WS 92, representing a decrease of WS 2 from the third quarter of 2013 and a decrease of WS 40 from the fourth quarter of 2012. The flat rate increased by 9 percent from 2012 to 2013.

Bunkers in Rotterdam averaged $582/mt in the fourth quarter of 2013 compared to $585/mt in the third quarter of 2013. Bunker prices varied between a high of $600/mt on October 3rd and a low of $565/mt on November 7th.

The MR fleet totaled 1,597 vessels at the end of the fourth quarter of 2013, up from 1,488 vessels at the end of the previous quarter. The order book counted 389 vessels at the end of the fourth quarter, which represents approximately 24 percent of the MR fleet.

The LR2 fleet totaled 222 vessels at the end of the fourth quarter of 2013, up ten from the previous quarter. The order book remained unchanged at 30 vessels at the end of the fourth quarter, which represents approximately 14 percent of the LR2 fleet.

Drybulk

According to the Baltic Exchange the average Capesize spot earnings in the fourth quarter of 2013 was $27,072/day compared to $18,968/day in the third quarter.

According to Chinese official data iron ore imports to China increased from 217 million tons in the third quarter to 219 million tons in the fourth quarter of 2013. The coal imports increased from 70 million tons to 72 million tons in the same period.

According to Fearnley's the Capesize fleet (150-200'dwt) totaled 1,044 vessels at the end of the fourth quarter of 2013, an increase of three vessels from the previous quarter. The order book counted 145 vessels at the end of the fourth quarter, compared with 103 vessels the previous quarter, representing 14 percent of the Capesize fleet.

Strategy and Outlook

Frontline 2012 was established in 2011 as the Seatankers Group's main investment vehicle in the shipping industry. As of February 26, 2014 the Company operates a fleet consisting of six VLCCs, four Suezmax tankers and five MR tankers and owns 63 fuel efficient newbuilding contracts, the majority of which will be delivered in 2014 and 2015.

Most shipping markets are in the early stage of a cyclical revival, as fleet growth is expected to fall below recent levels for the next several years, while a stronger global economy revives growth in tonnage demand.

The Company's strategic plan has from the very start been to build up a portfolio of fuel efficient newbuilding contracts with historically low contracting cost in different shipping segments and at a later stage streamline the activities by creating pure plays in different shipping segments through consolidation, divestments and spin offs.

The Board initiated the process of streamlining the Company by investing in AGHL and selling its eight VLGC newbuildings to AGHL in November 2013. Following the acquisition, AGHL became the third largest, pure play VLGC owner and operator with six operating vessels and eight newbuildings with attractive delivery dates. The aim is to complete an initial public offering of AGHL's shares in the U.S. or Norway. Frontline 2012's intention is to make further distributions of AGHL shares. 

Frontline 2012 targets a New York listing of its Cape size business within the second or third quarter of 2014 and has started this process. The strategy is to launch a "cape-yield" company, with relatively low leverage.

The recent increase in crude tanker rates, which began in the second half of last year, is a sign of an improved balance in the crude tanker market and the Company expects that the supply/demand balance will improve further. This creates opportunities in the crude segment also. However this is a fine balance which can easily be changed by increased fleet supply caused by increased ballast speed, decrease in vessel scrapping and aggressive newbuilding ordering.  

The recent positive development in the tanker market and the increase in trading days for MR tankers is likely to give improved operating results in the first 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 management's examination of historical operating trends. Although the Board 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 with the United States Securities and Exchange Commission.

The Board of Directors
Frontline 2012 Ltd.
Hamilton, Bermuda
February 26, 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