Frontline Ltd. (FRO)

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Frontline (FRO)

Q2 2011 Earnings Call

August 26, 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

Joshua Katzeff - Deutsche Bank

Gregory Lewis - Crédit Suisse AG

Fotis Giannakoulis - Morgan Stanley

Michael Webber - Wells Fargo Securities, LLC

Justine Fisher - Goldman Sachs Group Inc.

Urs Dür - Lazard Capital Markets LLC

Salvatore Vitale - Sterne Agee & Leach Inc.

Michael Pak - Clarkson Capital Markets

Presentation

Operator

Good day, and welcome to the Frontline Ltd. Q2 2011 Results Presentation. Today's conference is being recorded. At this time, I would like to turn the conference over to Jens Martin Jensen. Please go ahead, sir.

Jens Jensen

Thank you. Good morning, good afternoon, and welcome to our Q2 presentation. We will follow our usual program for this presentation with our CFO, Inger Klemp, going through the Q2 highlights and main transactions, thereafter a financial review of the quarter and thereafter a short update of our newbuilding program. After that, I will talk what happened or maybe what did not happen in the market in Q2 and say a few words on how we see things and after that, we will take your questions. I'm sure there will be a few today.

So Inger, if you could start please?

Inger Klemp

Thanks, Jens, and good morning and good afternoon, ladies and gentlemen. I will guide you through the highlights and financial review in the second quarter of 2011 and so far in the third quarter, together with a run-through of the newbuilding program.

Then moving to Slide 4. In March 2011, the company exercised its option to acquire the 2002-built VLCC and sold the vessel to an unrelated third party for $67 million. The company has, in connection with the sale, exits charter back the vessel from the new owner. And the duration of the time charter is approximately 2 years at a rate of $32,500 per day. Delivery to the new owners and commencement of the time charter took place concurrently on May 27, 2011, and the company recorded a gain of $3.9 million in the second quarter. In addition, the company expects to record a gain of approximately $13.1 million over the remaining period of the 2-year time charter-in.

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. The company recorded losses of $9.3 million and $8.5 million, respectively, for the 2 terminations in the second quarter of 2011. In May 2011, the chartered-in VLCC Kensington was redelivered to the owners.

Our VLCC newbuilding construction program is expected to be delayed with approximately 4 to 5 months and, as a result of that, expected payments of $79.9 million and $73 million have been moved from this year into 2012 and from 2012 into 2013 since the first quarter earnings release.

Moving to Slide 5. I will then do a quick run-through of the financial highlights in the second quarter 2011. Frontline reports a net loss of $35.2 million, equivalent to loss per share of $0.45 in the second quarter of '11, compared with net income of $15.5 million and earnings per share of $0.20 in the first quarter of 2011. The net loss includes a loss on sale of assets and amortization of deferred gains of $12 million, which comprises losses of $9.3 million and $8.5 million arising on the termination of the long-term charter parties for the OBO carriers Front Leader and Front Breaker, partially offset by gains of $3.9 million and $2 million relating to the sale of Front Eagle and Front Shanghai. Net loss, excluding gains and losses, was $23.2 million equivalent to loss per share of $0.30.

Frontline announces a net loss of $19.8 million for the 6 months ended June 30, 2011, equivalent to a loss per share of $0.25. Net loss, excluding gains and losses, was $29.5 million for the 6 months ended June 30, 2011, equivalent to a loss per share of $0.38. And we have decided to pay a dividend of $0.02 per share for the second quarter.

Moving down to Slide 6. Net loss, excluding gains and losses in the second quarter of 2011, is about $17 million worth than in the first quarter of 2011. The decrease can mainly be explained by -- first of all, net income on time charter basis was about $20 million lower in the second quarter than in the first quarter due to a decrease in the TCE per day in the second quarter and less trading days in the quarter as a consequence of sale of vessels and termination of leases.

Secondly, profit sharing to Ship Finance decreased about $2 million due to decrease in TCE per day in the quarter. Ship operating expenses increased by $300,000 compared with the preceding quarter, primarily as a result of an increase in drydocking costs of $2.3 million, partially offset by the increase in running costs mainly due to recent sale and lease termination.

Charter hire expenses increased by $900,000 in the second quarter compared with the preceding quarter, primarily due to an increase in the provision for loss making voyages and charter hire for Front Shanghai and Front Eagle, partially offset by a decrease in charter hire for Hampstead due to off hire and Kensington due to redelivery on May 18.

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