Frontline Ltd. (FRO)

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Frontline (FRO)

Q3 2012 Earnings Call

November 29, 2012 9:00 am ET

Executives

Jens Martin Jensen - Chief Executive Officer of Frontline Management As

Inger M. Klemp - Chief Financial Officer and Chief Financial Officer of Frontline Management AS

Analysts

Jonathan B. Chappell - Evercore Partners Inc., Research Division

Erik Nikolai Stavseth - Arctic Securities ASA, Research Division

Herman Hildan - RS Platou Markets AS, Research Division

Joshua Katzeff - Deutsche Bank AG, Research Division

Fotis Giannakoulis - Morgan Stanley, Research Division

Michael Webber - Wells Fargo Securities, LLC, Research Division

George Berman

Glenn Lodden - Sparebank 1 Markets AS, Research Division

David E. Beard - Iberia Capital Partners, Research Division

Ole G. Stenhagen - SEB Enskilda, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Frontline Limited Q3 2012 Earnings Presentation. For your information, today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jens Martin Jensen, CEO. Please go ahead, sir.

Jens Martin Jensen

Thank you. Good morning, good afternoon, and welcome to our Q3 presentation. As you can see from the reported numbers, it was a very difficult quarter with depressed earnings in the crude segments compounded with expensive drydockings and additional off-hire in the quarter and the write-off of a chartering claim, which we do hope we can recover in the months period ahead. We will follow our usual program for the presentation with Inger going through the Q3 highlights and main transactions, financial review of the quarter and the update on our small newbuilding program. After that, I will follow-up with some market comments and what we saw in Q3 and a bit on where the market is at present. So Inger, if you could start, please, thank you.

Inger M. Klemp

Thanks, Jens, and good morning, and good afternoon, ladies and gentlemen. As Jens just said, I will guide you through the highlights and the financial reviews in the third quarter of 2012 and so far then into the fourth quarter.

Moving then to Slide 4, highlights and transactions. In August 2012, the company announced that it has agreed with the finance to terminate the long-term charter party for the OBO carrier, Front Climber [ph]. The Ship Finance [indiscernible]. The charter party was terminated on October 15, 2012. The company made a compensation payment to Ship Finance of approximately $3.6 million [ph] for the early termination of the charter. This transaction will reduce the company's obligations on the capital leases by $1.7 million, and the company recorded an impairment loss of $4.2 million in the second quarter for this vessel.

In September 2012, the company agreed with Nordic American Tankers that Frontline's 9 Suezmax vessels will leave the Orion Suezmax pool, and that will happen effective at the end of the year and they will take over the Frontline sale of this company, 50% effective January 1, 2013. In October 2012, the company announced that they have agreed with Ship Finance to terminate the long-term charter party for the OBO carrier, Front Driver and the Ship Finance had signified to sold the vessel. The charter party is expected to terminate in late November 2012. Frontline will make a compensation payment to Ship Finance of approximately $0.5 million for the early termination of the charter. The transaction will reduce the company's obligations on the capital leases by approximately $1.1 million, and the company expects to record a loss of approximately $0.1 million.

Then moving to Slide 5, financial highlights. I will then do a quick run-through of the financial highlights in the third quarter of 2012. In this slide, you will see the company reported a net loss of $49 million in the third quarter, equivalent to a loss per share of $0.63. And for the 9-month period ended September 30, Frontline announced a net loss of $66.2 million, which is equivalent to a loss per share of $0.85. Frontline will not pay dividends for the third quarter.

Then moving to Slide 6, income statement. The net loss in the third quarter of 2012 is about $38 million weaker than in the second quarter of 2012. There are some main reasons for this. The first main reason is that income on contracted basis was about $47 million less in the third quarter than it was in the second quarter. That again was mainly due to a decrease in TCEs per day in this quarter. Also, as Jens mentioned, we had a loss provision of unpaid charter hire of $5.5 million, which was recorded in the third quarter. Secondly, which contributed positively, was a contingent rental expense decrease of about $8 million this quarter compared with the second quarter due to the decrease in TCE per day in the third quarter. Then the ship operating expenses increased by $1.2 million compared with the preceding quarter, mainly due to the increase in earning cost. Then, charter hire expenses decreased by $1.2 million compared with the preceding quarters, primarily as a result of the redelivery of the chartered Indies, the Hampstead in April 2012. Further, the depreciation decreased by $1 million due to the redelivery of Front Drivers in the quarter. And otherwise, there were minor changes to other items this quarter.

Then moving to Slide 7. Income on time charter basis. Frontline's double hull VLCC fleet earned $13,300 per day in the third quarter compared with $31,500 per day in the second quarter, and the average for the whole VLCC fleet was about $12,300 per day in this quarter compared with $31,000 per day in the previous quarter. The Suezmax fleet earned in the Orion pool $11,100 per day in the third quarter compared with $17,400 per day in the second quarter. And as a consequence of that similar receipts in [ph] vessels paid outside the pool a somewhat lower TCE rate, we earned on average in the spot market approximately $10,500 per day in this quarter compared with $60,200 per day in the second quarter. This is also the same as the whole Suezmax fleet, the average for the whole Suezmax fleet. Then the OBOs earned $33,700 per day in the third quarter compared with $28,100 per day in the second quarter as a consequence of the lease terminations made. The TCE numbers showed that sometime over this quarter has outperformed our peers in the VLCC segment but the Suezmax segment was disappointing.

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