Frontline Ltd. (FRO)

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Frontline (FRO)

Q1 2011 Earnings Call

May 25, 2011 9:00 am ET

Executives

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

Jens Jensen - Chief Executive Officer of Frontline Management AS

Analysts

Robert MacKenzie - FBR Capital Markets & Co.

Justin Yagerman - Deutsche Bank AG

Fotis Giannakoulis - Morgan Stanley

Douglas Mavrinac - Jefferies & Company, Inc.

Salvatore Vitale - Sterne Agee & Leach Inc.

Michael Pak - Clarkson Capital Markets

Presentation

Operator

Good day, and welcome to the Frontline Q1 2011 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 for today, Mr. Jens Martin Jensen, CEO; and Ms. Inger M. Klemp, CFO. Please go ahead.

Jens Jensen

Good morning, good afternoon, and welcome to our Q1 presentation. We will follow our usual program for this presentation with Inger going through the Q1 highlights and main transactions, financial review of the quarter and thereafter a quick update on our newbuilding program. After that, I will talk about what happened market-wise in Q1 and say a few words on how we see things going forward.

So Inger, if you could start please?

Inger Klemp

Yes. Thanks, Jens, and good morning, and good afternoon, ladies and gentlemen. Moving then to Slide 4 and 5, highlights and transactions. In January 2011, Frontline sold its 2006-built VLCC from Shanghai. The sales proceeds from that sale was $91 million, and after repayment of debt, the sale generated $31.5 million in cash. Front Shanghai, in connection with the sale, agreed to charter back the vessel for 2 years from the new owner, and the duration is 2 years, as I said, and it's $35,000 per day. Delivery to the owners took place in January 26.

Company recorded a gain, this quarter, of $7.9 million. And in addition, we will record a gain of $13.8 million over the remaining period of the time charter. Further, in January 2011, Frontline sold all its shares in OSG. The sale generated approximately $46.5 million in cash, and the company recorded loss of $3.3 million in the first quarter.

In March, the company exercised its option to acquire the 2002-built VLCC Front Eagle, and then after, sold the vessel to an unrelated third party for $67 million. The company has, in connection with the sale, agreed to charter back the vessel from the new owner. And the duration of this time charter is approximately 2 years at the rate of $32,500 per day.

Delivery to the new owners and commencement of the time charter is expected to take place concurrently in the second quarter of 2011. And the company expects to record a gain of approximately $4.2 million in the second quarter and a gain of approximately $13 million over the period of the 2-year time charter period.

In February 2011, the company agreed with Ship Finance to terminate the long-term charter parties between the companies for 2 single-hull VLCCs, the Front Highness and the Front Ace. And Ship Finance simultaneously sold these vessels to unrelated third parties. Termination of the charters took place in February and March. Ship Finance made a compensation payment to the company of $5.3 million for the early termination of the charters, which was recorded in the first quarter of 2011.

Further in April and May 2011, we agreed with Ship Finance to terminate the long-term charter parties between the companies for the OBO carriers, Front Leader and Front Breaker, respectively. And we expect to record loss of approximately $9.3 million and $8 million, respectively, for the 2 terminations in the second quarter of 2011. Finally, in March 2011, we extended the bareboat charter out contract for the single-hull VLCC Front Lady until August 2013.

Then moving to Slide 6, financial highlights. I will again do a quick run through of the financial highlights in the first quarter of 2011. Frontline reports net income of $15.5 million equivalent to earnings per share of $0.20 in the first quarter of 2011. This is an increase compared to the fourth quarter of $27 million, mainly due to gain on sale of assets and other nonoperating items and improved results from operations.

The net income includes a gain of $13.2 million, relating to the gain of $7.9 million on the sale of Front Shanghai and a gain of $5.3 million on the termination of the Front Highness and Front Ace charter. The net income also includes the nonoperating gains of $8.1 million, which mainly relates to gain of $8.8 million in Independent Tankers Corporation Limited, arising on the termination of a funding agreement. And then on the amortization of a deferred gain of $3.1 million on the sale of a newbuilding contract, which was partially offset by the loss of $3.3 million on the sale of the company's shares in OSG. The net loss excluding the gains and losses was $6.3 million, equivalent to loss per share of $0.08. And on this basis, we have agreed or decided to have a dividend of $0.10 for this quarter.

Then moving to Slide 7. Net income excluding gains is about $4 million, better than in the fourth quarter of 2010. And the increase can mainly be explained by the following items: income on the time charter basis was in line with the fourth quarter compared -- other than due to the fourth quarter. That was due to an increase in time charter equivalent rate per day in the first quarter compared to the fourth quarter. But this was offset by less trading days in this quarter, as a consequence of that the first quarter has fewer days but also due to redelivery of vessels.

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