Frontline Ltd. (FRO)

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Frontline (FRO)

Q1 2013 Earnings Call

May 30, 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

Fotis Giannakoulis - Morgan Stanley, Research Division

Joshua Katzeff - Deutsche Bank AG, Research Division

Eirik Haavaldsen - Pareto Securities AS, Research Division

John Reardon

Michael Webber - Wells Fargo Securities, LLC, Research Division

Gregory Lewis - Crédit Suisse AG, Research Division

David E. Beard - Iberia Capital Partners, Research Division

Presentation

Operator

Good day, and welcome to Q1 2013 Frontline Limited Earnings Conference Call. Today's conference is being recorded. And at this time, I would like to turn the conference over to Mr. Jens Martin Jensen. Please go ahead, sir.

Jens Martin Jensen

Thank you. Good morning, good afternoon and welcome to our Q1 presentation.

We've unfortunately had a little technical glitch, so you will have to change the slides on your own individual computers. Anyway, we'll go through our usual program for the presentation with Inger going through the Q1 highlights and main transactions, financial review of the quarter and an update our small new building program. After that, I will follow up with some market comments and some comments on the present market situation. If you could start, Inger. Thank you.

Inger M. Klemp

Yes. Thanks, Jens. And good morning, and good afternoon, ladies and gentlemen.

Moving then to Slide 4, Highlights and Transactions. In the first quarter, Frontline has continued to terminate and redeliver older and non-core vessels. The charter party for the single hull Titan Aries was terminated in January 2013 and a gain of $7.6 million was recognized in the first quarter of 2013. Also, the charter party for the Suezmax tanker Front Pride was terminated in February 2013 and we made a net compensation payment to Ship Finance of $2.1 million for the early termination of the charter party. In January, Frontline paid $6 million for 1,143,000 shares in a private placement by Frontline 2012. And also, the last item here is at a Special General Meeting held on May 8, 2013, our shareholders approved a decrease in the par value of our ordinary shares from $2.50 to $1 per share and that was effective May 14, 2013.

Then moving to Slide 5, Financial Highlights. This quarter, Frontline reports a net loss of $18.8 million, equivalent to a loss per share of $0.24. This compares with a net loss of $16.6 million and a loss per share of $0.21 for the preceding quarter. Loss includes a gain of $7.6 million on the termination of the charter party for the single hull VLCC Titan Aries, a deferred gain of $1.8 million relating to the sale and leaseback of the VLCC double hull Eagle, and the gain on the dilution of ownership in Frontline 2012 of $5.2 million.

Then moving to Slide 6, Income Statement. Net loss, excluding gains, in the first quarter of 2013 is about $32 million, which is $3 million worse than in the fourth quarter of 2012. And this decrease can mainly be explained by, first of all, that income on time charter basis was about $22 million worse this quarter than it was in the fourth quarter, and that is due to the -- a decrease in TCE per day this quarter. Contingent rental expense decreased $12.3 million this quarter compared with the fourth quarter and that, again, is due to the decrease in time charter earnings per day in this quarter.

Ship operating expenses decreased by $2.3 million compared with the preceding quarter due to both the decrease in running cost and also a decrease in drydocking cost. Charter hire expenses decreased by $2.4 million compared with the preceding quarter, primarily as a result of redelivery of vessels, which is Gulf Eyadah. Depreciation decreased by $2 million due to redelivery of vessels. And otherwise, minor changes to other items this quarter.

Now moving to Slide 7, Income on time charter basis. Frontline double hull VLCC fleet earned $14,600 per day in the first quarter, and this compares with an $18,500 per day in the fourth quarter for 2012. The average for the whole VLCC fleet was about $17,000 per day in this quarter, compared with $19,300 per day in the previous quarter. The Suezmax fleet, they earned $14,500 per day in this quarter compared with $14,000 in the previous quarter. The OBOs earned a $13,300 per day in this quarter compared with $35,100 per day in the previous quarter as a consequence of the lease terminations made.

Time charter, the TCE numbers this quarter was disappointing with respect to the VLCC segment and satisfactory in the Suezmax segment compared to both peers and market.

Moving down to Slide 8, Ship operating expenses and Off-hire. We had average OpEx for the fleet of approximately $9,900 per day in the first quarter compared to approximately $9,700 per day in the previous quarter. We drydocked 1 VLCC in the first quarter, same as in the fourth quarter, as you can see from the graph on the upper right-hand side of the slide. As you can see from the graph on the lower right hand side of the slide, off-hire days were 157 days in the first quarter compared with 42 days in the fourth quarter 2012. So although we drydocked only 1 vessel in the first quarter, we commenced drydocking for 3 more vessels in the first quarter and the total number of hire days related to docking was 134 days. We expect to drydock 2 VLCC vessels and 1 Suezmax in the second quarter of 2013, in addition, to complete the drydocks for the VLCC drydocked in the first quarter.

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