Frontline Ltd. (FRO)

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Frontline (FRO)

Q4 2012 Earnings Call

February 22, 2013 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

Gregory Lewis - Crédit Suisse AG, Research Division

Erik Nikolai Stavseth - Arctic Securities ASA, Research Division

Randy Laufman - Odeon Capital Group LLC, Research Division

Fotis Giannakoulis - Morgan Stanley, Research Division

Eirik Haavaldsen - Pareto Securities AS, Research Division

Presentation

Operator

Good day, and welcome to the Q4 2012 Frontline Ltd. Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jens Martin Jensen. Please go ahead.

Jens Martin Jensen

Thank you. Good morning. Good afternoon. And welcome to our Q4 2012 presentation. We will follow our usual program for the presentation with Inger going through the Q4 highlights and main transactions, lay out the financial review of the quarter and an update of our small newbuilding program. After that, I will follow up with some market comments and what we saw in the fourth quarter and a bit on where the market is at present. So Inger, if you could start, please.

Inger M. Klemp

Thank you. And good morning and good afternoon, ladies and gentlemen. As Jens said, I will guide you through the highlights and the financial review in the fourth quarter of 2012 and so far into the first quarter of 2013.

Moving then Slide 4, Highlights and Transactions. Frontline has continued to terminate and re-deliver a number of older and non-core vessels in the fourth quarter, the long term charter parties for the OBO carriers, Front Climber and Front Driver, which were made in October and in November 2012, respectively.

The charter parties for the 2 single hull VLCCs, Ticen Ocean and Titan Aries, were terminated in November 2012 and in January 2013, respectively, and a gain of $11.2 million was recognized in the fourth quarter and we expect to recognize a gain of approximately $7.5 million in the first quarter of 2013, respectively.

In February 2013, Frontline agreed to terminate the long term charter party for the Suezmax tanker, Front Pride.

In December 2012, Frontline agreed to an early termination of the time charter out contracts on the 2 OBO carriers, Front Viewer and Front Guider, and receive the compensation for loss of hire of $35 million gross. Frontline also agreed to terminate the long term charter parties for these 2 vessels and paid $23.5 million to Ship Finance as compensation for the early termination for these charters.

In December 2012, Frontline redelivered the chartered-in VLCC Gulf Eyadah to its owner.

Moving then to Slide 5, Financial Highlights. Frontline reports a net loss of $16.9 million, equivalent to loss per share of $0.21 in the fourth quarter of 2012. This compares with a net loss attributable to the company of $49 million and a loss per share of $0.63 in the preceding quarter. For the full year 2012, Frontline announces a net loss of $82.8 million, equivalent to loss per share of $1.06.

Moving then to Slide 6, Income Statement. Net loss, excluding gains and losses and impairment loss in the fourth quarter of 2012 is about $23 million better than in the third quarter of 2012. And this increase can mainly be explained by the following items. First of all, income on time charter basis was about $14 million higher this quarter than in the third quarter, and that was mainly due to an increase in TCE per day in the fourth quarter.

Contingent rental expense or cash lease increased about $2 million this quarter compared with the third quarter due to the increase in time charter equivalent rates per day in this quarter. Ship operating expenses decreased by $7.4 million compared with the preceding quarter due to a decrease in earning cost and also a decrease in drydocking cost of $4.8 million.

Charter hire expenses decreased by $2.5 million compared with the preceding quarter, primarily as result of redelivery of vessels. Otherwise, minor changes to other item this quarter.

Then moving to Slide 7, Income on time charter basis. Frontline double hull VLCC fleet earned $18,500 per day in the fourth quarter compared with $13,300 per day in the third quarter. The average for the whole VLCC fleet was about $19,300 per day in the fourth quarter compared with $12,300 per day in the third quarter. The Suezmax fleet earned $14,000 per day in the fourth quarter compared with $10,500 per day in the third quarter. And the OBOs earned $35,100 per day in this quarter compared with $33,700 per day in the previous quarter. The TCE numbers show that Frontline this quarter has outperformed our peers both in the VLCC segment and the Suezmax segment.

Then moving to Slide 8, Ship operating expenses and Off-hire. We have average OpEx for the fleet of approximately $9,700 per day in the fourth quarter compared to approximately $11,800 per day in the previous quarter. The decrease is due to the increase in both earning cost and drydocking cost as we drydock only 1 VLCC vessel in the fourth quarter compared to 4 vessels in the third quarter as you can see from the graph on the upper right-hand side of this slide. As you can see, from the graph on the lower right-hand side of this slide, off-hire days placed 42 in the fourth quarter compared to 144 days in the third quarter. And we expect to drydock 3 VLCC vessels in the first quarter of 2013.

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