Frontline Ltd. (FRO)

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Frontline Ltd. (FRO)

Q3 2010 Earnings Call

November 24, 9:00 AM ET

Executives

Jens Martin Jensen – Chief Executive Officer

Inger Klemp – Chief Financial Officer

Analysts

Jon Chappell – J.P. Morgan

Josh Ketzerfarm – Deutsche Bank

Sal Vitale – Sterne, Agee

Gregory Lewis – Credit Suisse

Michael Weber – Wells Fargo

Fotis Giannakoulis – Morgan Stanley

Alaric Nightingale – Bloomberg

Presentation

Operator

Good day, ladies and gentlemen. And welcome to the Third Quarter Results Presentation. For your information, today's conference is being recorded.

At this time, I would like to turn the conference over to your host today, Mr. Jens Martin Jensen, CEO. Please go ahead, sir.

Jens Martin Jensen

Thank you. Good morning, good afternoon and welcome to our Q3 presentation. The third quarter was a difficult and strange quarter. But I’m happy that we managed to come out with a small profit, which not many other listed tanker owners did.

We will follow our usual program for this presentation with Inger going through -- following the highlights of the third quarter and main transactions, financial review of the quarter and then update of our newbuilding program. Thereafter, I will talk about what happened market wise in Q3 and thereafter, say a few words on how we see things going forward.

Inger, please?

Inger Klemp

Thanks, Jens, and good morning and good afternoon to you, ladies and gentlemen. I will guide you through the highlights on the financial review in the third quarter of 2010, together with a run-through of the newbuilding program and the fleet.

Moving then to slide four. The fourth and the final VLCC newbuilding from SWS of Front Signe and the fourth and the final of the original series of the Suezmax newbuilding from Rongsheng, the Front Njord were delivered in August 2010.

And in September 2010, Frontline agreed with Jinhaiwan Shipyard to re-structure its VLCC newbuilding program resulting that -- in that we now have a commitment to take delivery of five VLCC newbuildings with a total contract price of $525 million. The delivery date will also then differ by three months from the original contractual date and furthermore, payment terms of the previously ordered vessels were improved.

In September 2010, Frontline entered into an agreement to Time Charter Out two VLCCs. Golden Victory were extended to three years from October 2010 at a gross rate of $40,000 per day. And the Front Eminence for through the five years from November 2010 at a gross rate of $43,000 a day.

In November 2010, Frontline extended a Time Charter In agreement of the Front Chief to Front Commander and the Front Crown, all 1999 built vessels for one-year from January 2011 at $26,500 per day per vessel.

And then finally in November 2010, the company secured pre and post delivery financing in the amount of $147 million, representing 70% of contract price for the first two VLCC newbuildings to be built at Jinhaiwan and to be delivered in 2012.

Moving then to slide five. I will then give you a quick run through of the financial highlights in the third quarter. Frontline reports net income of $12.3 million, equivalent to earnings per share of $0.16 in the third quarter of 2010. As Jens said in the beginning of the conference, not very good results may be but at least the positive results, compared to our competitors, which I think more or less all of them had a loss.

This is a decrease compared to the second quarter of 2010 of $69 million. The net income includes a gain of $6.8 million relating to the amortization of deferred gain on three leases. The net income excluding this gain was $5.4 million, equivalent to earnings per share of $0.07, and on this basis, we announced the dividend of $0.25 per share for the third quarter.

Then moving to slide six. The net income excluding the gain is about $66 million we given of course in the second quarter of 2010. And the decrease can mainly be explained by, first, a decrease in income on time charter basis with $32 million in the third quarter, compared to the second quarter as we no longer charted in the Nordic American Tanker Shipping vessels from July, 1, 2010. And in addition to that, a decrease in the time charter equivalent rate per day in the third quarter, which gives us a total decrease in income on time charter basis by $100 million.

Then we have had a decrease in profit sharing payable to Ship Finance was $6 million. Further, ship operating expenses increased by $2.4 million, compared to the preceding quarter, primarily as a result of increase in running costs of $1.5 million, mainly related to delivery of newbuildings and a $900,000 increase in drydocking costs.

Frontline dry dock three vessels in the second quarter and two vessels in the third quarter, but a portion of cost related to Front Tina, which entered dry dock in the second quarter was expensed in the third quarter.

Charter hire expenses has decreased by $32 million in the third quarter, compared with the second quarter primarily due to the fact that we no longer then chartered in the Nordic American Tanker Shipping vessels from July 1, 2010. And as we mentioned earlier, this has a corresponding decrease in operating revenues. Then depreciation has increased about $1 million, due to delivery of the newbuildings.

Moving to slide seven. Frontline double hull VLCCs fleet, excluding the vessels on floating time charter earned in the spot market approximately $30,200 per day. Including the vessels on floating time charter, the VLCC fleet earned $30,000 doubles and $24,400 per day for singles with an average spot earnings of $29,900 per day. The average for the whole VLCC fleet was about $29,800 per day in the quarter.

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