FRNT - Second quarter and six months 2014 results

Highlights

Frontline 2012 reports net income of $136.6 million and earnings per share of $0.55 for the second quarter of 2014. Frontline 2012 reports net income of $151.1 million and earnings per share of $0.61 for the six months ended June 30, 2014. The Company announces a cash dividend of $0.05 per share for the second quarter.Frontline 2012 received $99.3 million in April 2014 in connection with the cancellation of its first newbuilding contract at Jinhaiwan and recorded a gain of $35.9 million.In April 2014, the Company completed the previously announced sale of five Capesize newbuilding contracts to KTL and recorded a net gain of $74.8 million.In April 2014, the Company sold 2,854,985 of its shares in AGHL and recorded a net gain of $16.9 million.The Company has cancelled the first two MR product tanker newbuilding contracts at STX Dalian.

  
Second Quarter and Six Months 2014 Results  

Frontline 2012 announces net income of $136.6 million and earnings per share of $0.55 for the second quarter of 2014 compared with net income of $14.5 million and earnings per share of $0.06 in the preceding quarter. Net income in the second quarter includes a gain on newbuilding contracts and sale of assets of $127.6 million comprising a gain of $35.9 million in connection with the cancellation of the first newbuilding contract (J0025) at Jinhaiwan, a gain of $16.9 million on the sale of shares in Avance Gas Holdings Limited ("AGHL") and a gain of $74.8 million on the sale of five newbuilding contracts to Knightsbridge Tankers Limited ("KTL").

The average daily time charter equivalents ("TCEs") earned in the spot and period market in the second quarter by the Company's VLCCs and Suezmax tankers were $24,000 and $14,400, respectively, compared with $39,500 and $26,500, respectively, in the preceding quarter. The spot earnings for the Company's VLCC and Suezmax tankers were $22,300 and $14,400, respectively, compared with $40,600 and $26,500, respectively, in the preceding quarter. The daily earnings for the Company's MR product tankers were $15,800 compared with $17,900 in the preceding quarter.

Frontline 2012 announces net income of $151.1 million and earnings per share of $0.61 for the six months ended June 30, 2014 compared with net income of $33.1 million and earnings per share of $0.16 in the six months ended June 30, 2013. Net income in the six months ended June 30, 2014 includes a gain on newbuilding contracts and sale of assets of $127.6 million while the net income in the six months ended June 30, 2013 included a gain of $30.3 million in connection with the cancellation of the second newbuilding contract (J0026) at Jinhaiwan.

The average daily time charter equivalents ("TCEs") earned in the spot and period market in the six months ended June 30, 2014 by the Company's VLCCs and Suezmax tankers were $31,700 and $20,400, respectively, compared with $20,600 and $12,800, respectively, in the six months ended June 30, 2013. The spot earnings for the Company's VLCC and Suezmax tankers were $31,300 and $20,400, respectively, compared with $16,400 and $12,800, respectively, in the six months ended June 30, 2013. The daily earnings for the Company's MR product tankers were $16,700 in the six months ended June 30, 2014.

The Company estimates average cash breakeven TCE rates for the remainder of 2014 for its VLCCs, Suezmax tankers and MR product tankers of approximately $26,800, $19,000 and $13,900, respectively.

Newbuilding Program

The Company's newbuilding program, excluding newbuildings agreed to be sold and newbuilding contracts with STX Dalian and STX Korea, currently comprises 12 LR2 newbuildings plus two options. As of June 30, 2014 total installments of approximately $75.7 million have been paid for these 12 LR2 newbuilding contracts and the remaining installments to be paid amounted to approximately $468.7 million. We expect delivery of the first LR2 from Longxue shipyard at the end of September 2014. The 25 Capesize newbuildings, which the Company has agreed to sell to Knightsbridge, are recorded as Newbuildings Held for Sale at June 30, 2014.

In 2012 and 2013, the Company cancelled all of its five newbuilding contracts at Jinhaiwan ship yard and has received a total refund to date of $243.9 million, of which $89.8 million has been used to repay debt. Total claims not yet received total $76.2 million.

In May 2014, the Company sent a notice of cancellation to STX (Dalian) Shipbuilding Co Ltd ("STX Dalian") in respect of Hull D-2171 and demanded payment $9.5 million and $1.3 million in respect of installments paid and accrued interest, respectively. The yard has disputed this cancellation and the Company has referred it to arbitration.

In July 2014, the Company sent a notice of cancellation to STX Dalian in respect of Hull D-2172 and demanded payment $9.5 million and $1.4 million in respect of installments paid and accrued interest, respectively. The yard has not given notice that it disputes the cancellation and as a result the Company has not referred the validity of the cancellation to arbitration.

Corporate

In April 2014, the Company sold 2,854,985 of its shares in AGHL for net proceeds of $57.1 million and recorded a gain of $16.9 million in the second quarter. The Company currently owns 4,100,990 shares in AGHL representing approximately 11.6% of the total shares outstanding.

In April 2014, the Company completed the previously announced sale of five Capesize newbuilding contracts to KTL and recorded a net gain of $74.8 million in the second quarter. The Company received 15.5 million shares as consideration and currently owns approximately 31.6% of the total shares outstanding in KTL.

The Company purchased 2,523,867 of its own shares in the three months ended June 30, 2014 for $19.8 million and purchased 1,130,662 of its own shares in the three months ended March 31, 2014 for $8.6 million. These shares have been acquired further to a Board resolution to buy up to 49,820,000 shares. 245,445,471 ordinary shares were outstanding as of June 30, 2014, and the weighted average number of shares outstanding for the quarter was 247,285,614. The Company has purchased 3,137,588 of its own shares since June 30, 2014 for $22.1 million.

The Company announces a cash dividend for the second quarter of 2014 of $0.05 per share. The ex-dividend date has been set to September 9, 2014, the record date is September 11, 2014 and the distribution date is on or about September 25, 2014.

The Market

Crude

The market rate for a VLCC trading on a standard 'TD3' voyage between the Arabian Gulf and Japan in the second quarter of 2014 was WS 38, representing a decrease of WS 13 points from the first quarter of 2014 and in line with the second quarter of 2013. The flat rate decreased by 6.7 percent from 2013 to 2014.

The market rate for a Suezmax trading on a standard 'TD5' voyage between West Africa and Philadelphia in the second quarter of 2014 was WS 63, representing a decrease of WS 16 points from the first quarter of 2014 and an increase of WS 9 points from the second quarter of 2013. The flat rate decreased by 6 percent from 2013 to 2014.

Bunkers at Fujairah averaged $601/mt in the second quarter of 2014 compared to $611/mt in the first quarter of 2014. Bunker prices varied between a high of $621/mt on June 23rd and a low of $589/mt on May 8th.

The International Energy Agency's ("IEA") August 2014 report stated an OPEC crude production of 30.0 million barrels per day (mb/d) in the second quarter of 2014. This was unchanged compared to the first quarter of 2014. 

The IEA estimates that world oil demand averaged 91.7 mb/d in the second quarter of 2014, which is an increase of 0.2 mb/d compared to the previous quarter. IEA estimates that world oil demand in 2014 will be 92.7 mb/d, representing an increase of 1.2 percent or 1.1 mb/d from 2013.

The VLCC fleet totalled 629 vessels at the end of the second quarter of 2014, two vessels up from the previous quarter. Five VLCCs were delivered during the quarter, three were removed. The order book increased by 12 vessels and counted 92 vessels at the end of the second quarter, which represents 15 percent of the VLCC fleet.

The Suezmax fleet totalled 448 vessels at the end of the second quarter, down one vessel from the end of the previous quarter. One vessel was delivered during the quarter whilst two were removed. The order book counted 55 vessels at the end of the second quarter, which represents approximately 12 percent of the Suezmax fleet.

Product

The market rate for a MR trading on a standard "TC2" voyage between Rotterdam and New York in the second quarter of 2014 was WS 105, representing a decrease of WS 28 from the first quarter of 2014 and a decrease of WS 32 from the second quarter of 2013. The flat rate decreased by 5.3 percent from 2013 to 2014.

Bunkers in Rotterdam averaged $581/mt in the second quarter of 2014 compared to $575/mt in the first quarter of 2014. Bunker prices varied between a high of $604/mt on June 23rd and a low of $568/mt on May 1st.

The MR product fleet totalled 1,645 vessels at the end of the second quarter of 2014, up from 1,627 vessels at the end of the previous quarter. The order book counted 380 vessels at the end of the second quarter, which represents approximately 23 percent of the MR fleet.

The LR2 fleet totalled 219 vessels at the end of the second quarter of 2014, down one vessel from the previous quarter. The order book decreased by two to 29 vessels at the end of the second quarter, which represents approximately 13 percent of the LR2 fleet.

Strategy and Outlook

Over the last quarters Frontline 2012 has been through a streamlining process. The Board initiated this process by investing in and selling its eight VLGC newbuildings to AGHL in November 2013. The investment in AGHL has developed favorably, driven by a strong VLGC market.

Following the AGHL transaction, Frontline 2012 has sold five of its Capesize newbuildings and agreed to sell a further 25 Capesize newbuildings, to Knightsbridge. The Capesize market in the second quarter has been disappointing. However the market has seen some improvement in August following a very slow July. Despite a slower market than expected, the board of Frontline 2012 believes in a market recovery and that Knightsbridge is uniquely positioned to benefit from this. Knightsbridge is currently considering further growth and consolidation opportunities.

The Board currently has full focus on developing the Company's crude and product portfolio. The portfolio today consists of six VLCCs, four Suezmax tankers, six MR tankers on the water and 12 LR2 newbuildings plus two options. Further growth is evaluated, all options being considered, including several structural alternatives. The Board expects to conclude on this in the third or fourth quarter in 2014.

In 2013 the shipping market experienced a lot of new start ups with limited experience raising capital to order newbuildings. In 2014 we have seen that the number of new start ups, and newbuilding orders have slowed down. Frontline 2012 is pleased to see this development. Today it seems like equity is only available for projects backed by experienced ship owners with a proven track record. The Board believes there will be several interesting consolidations opportunities going forward.

The Board is encouraged by the positive development in the crude tanker market in the third quarter. This is likely to give an improved operating result (excluding one time gains and losses) in the third 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 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 with the United States Securities and Exchange Commission.

The Board of Directors
Frontline 2012 Ltd.
Hamilton, Bermuda
August 27, 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

FRONTLINE 2012 LTD SECOND QUARTER AND SIX MONTHS 2014 RESULTS


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Source: Frontline 2012 Ltd. via Globenewswire
HUG#1851729