Frontline Ltd. (FRO)

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Frontline (FRO)

Q3 2011 Earnings Call

November 22, 2011 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

David Epstein - CRT Capital Group LLC, Research Division

Damien Fortune

Joshua Katzeff - Deutsche Bank AG, Research Division

Fotis Giannakoulis - Morgan Stanley, Research Division

Justine Fisher - Goldman Sachs Group Inc., Research Division

Salvatore Vitale - Sterne Agee & Leach Inc., Research Division

Michael Webber - Wells Fargo Securities, LLC, Research Division

Presentation

Operator

Good day, and welcome to the Frontline Ltd. Quarter 3 Results Conference Call. [Operator Instructions] Today's conference is being recorded. At this time, I'd like to turn the conference over to Jens Martin Jensen, CEO. Please go ahead.

Jens Martin Jensen

Good morning, good afternoon, and welcome to our Q3 presentation. This presentation will follow our usual program with our CFO, Inger Klemp, going through the Q3 highlights and main transactions, financial review of the quarter and an update of our newbuilding program. After that, I will go through some market slides and market developments and where we see things going forward.

Before we start the actual presentation, I would like to mention that Q3 was an extremely difficult quarter, and I think must have been the eye the tornado. The ship values almost dropping 50% for 2000-built VLCCs and with one of the leading indexes trailing at negative earnings, a big part of the quarter. This has obviously taken the toll of Frontline, which the Q3 results shows and with the continued weak markets, we see ourselves in a very difficult situation. You could start the presentation Inger, please.

Inger M. Klemp

Thanks, Jens, 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 third quarter of 2011 and so far into the fourth quarter. Then we'll end with a run through of the newbuilding program. Then I would like you to move to Slide 4.

In September 2011, we agreed with Ship Finance to terminate the long-term charter parties for the single hull VLCCs, Titan Orion, Titan Aries and Ticen Ocean. Ship Finance simultaneously sold the vessels to an unrelated third party. Each charter party will terminate at the time the vessel is delivered to the new owners. At which time, Ship Finance will make compensation payments to the company for its termination of the charter party.

Expected compensation amounts and termination dates are $9.4 million in the first quarter of 2011 -- 2012, sorry for Titan Orient. $6.5 million in the fourth quarter of 2012 for Titan Aries. Then, $10.2 million in the third quarter of 2013 for Ticen Ocean. In October and November 2011, Frontline has entered into agreements to sell its 1993- to 1996-built Suezmax tankers Front Fighter, Front Hunter and Front Delta.

The sales resulted in a total net cash outflow of approximately $4.2 million after repayment of bank debt and a loss of $76.2 million, which has been included in the impairment loss recorded in the third quarter. Further in October 2011, Frontline agreed with Ship Finance to terminate the long-term charter parties between the companies for the OBO carrier Front Striver. The company made cash compensation to Ship Finance of $8.1 million, and we expect to record a loss of $9.3 million in the fourth quarter of 2011.

Obligations on the capital leases will be reduced by $10.7 million. Company is currently establishing the Orion Tanker pool with Nordic American Tankers Limited and expects it to be operational by the end of the year. This specialist Suezmax pool with 29 double hull Suezmaxes at the outset is expected to enhance customer service and reduce cost. During the fourth quarter of '11, the company will leave the Gemini pool.

And I would like you to move to Slide 5. Then I would do a quick run through of the financial highlights in the third quarter of 2011.

Frontline reported net loss excluding impairment loss of $44.7 million. This is equivalent to a loss per share of $0.57. Net loss includes an impairment loss relating to 5 Suezmax tankers built between 1992 and '96, and include losses of $27.1 million, $30.6 million and $18.5 million, which have been realized in the fourth quarter on the disposals of Front Fighter, Hunter and Front Delta, respectively.

Impairment losses are taken when the events and changes in circumstances occur that cause the company to believe that the future cash flow for an individual vessel will be less than it's carrying value and not fully recoverable. In such instances an impairment charge is recognized if the estimate of the undiscounted cash flow is expected to result through the use of the vessel and its eventual disposition is less than the vessel's carrying amount. The net loss including impairment loss was $166.2 million equivalent to a loss per share of $2.13. Frontline announces a net loss of $64.5 million for the 9 months ended September 30, 2011, to a loss per share of $0.83 excluding the impairment loss. And Frontline will not pay a dividend for the third quarter.

Moving then to Slide 6. Net loss excluding gains and losses in the third quarter of 2011 is about $25 million less than it was in the second quarter. And the decrease can mainly be explained by the income on time charter basis was about $37 million lower in the third quarter, leads to a decrease in TCE per day in this quarter.

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