Highlights
* Frontline 2012 reports a net loss of $1.0 million and a loss per share of
$0.01 for the third quarter of 2012.
* Frontline 2012 reports net income of $7.4 million and earnings per share of
$0.06 for the nine months ended September 30, 2012.
* In August 2012, the Company concluded newbuilding contracts for two 83,000
Cbm LPG Carriers ("VLGCs") and secured four optional contracts.
* In September 2012, the Company exercised two of the four VLGC newbuilding
options and secured additional two options.
* In September 2012, the Company cancelled the first of the five VLCC
newbuilding contracts at Jinhaiwan ship yard due to the excessive delay
compared to the contractual delivery date.
Introduction
Frontline 2012 Ltd. (the "Company" or "Frontline 2012") is a commodity shipping
company incorporated in Bermuda on December 12, 2011, which owns a total of ten
crude oil tankers, 24 newbuilding contracts and four option contracts within the
crude oil, petroleum product and Liquefied Petroleum Gas ("LPG") markets. The
Company's sailing fleet is one of the youngest in the industry and currently
consists of six very large crude carriers, or VLCCs, and four Suezmax tankers,
operating in the spot and the period markets. The largest shareholder is Hemen
Holding Ltd. ("Hemen") with a shareholding of approximately 51 percent.
Third Quarter and Nine Months 2012 Results
Frontline 2012 announces a net loss of $1.0 million and a loss per share of
$0.01 for the third quarter of 2012. Frontline 2012 announces net income of $7.4
million and earnings per share of $0.06 for the nine months ended September
30, 2012.
The average daily time charter equivalents ("TCEs") earned in the spot and
period market in the third quarter by the Company's VLCCs and Suezmax tankers
were $25,100 and $10,400, respectively, compared with $32,700 and $17,600,
respectively, in the preceding quarter. The spot earnings for the Company's VLCC
and Suezmax tankers were $23,100 and $10,400, respectively, compared with
$34,800 and $17,600, respectively, in the preceding quarter.
As of September 30, 2012, the Company had cash and cash equivalents of $184.6
million compared with $219.2 million as of June 30, 2012. The Company generated
$9.2 million in cash from operating activities and used $43.5 million in
investment activities.
The Company has prepaid bank debt repayments for the year 2012 in exchange for a
one year payment holiday in 2013. Following this the estimated average cash cost
break even rates for the remainder of 2012 on a TCE basis for its VLCCs and
Suezmax tankers are approximately $14,900 and $13,800, respectively.
Newbuilding Program
In August 2012, the Company concluded newbuilding contracts for two VLGCs and
secured four optional contracts. In September 2012, the Company exercised two of
these four VLGC newbuilding options and secured another two VLGC newbuilding
options. Frontline 2012 currently has four VLGC options remaining with the yard.
The deliveries of the ordered VLGCs are expected to take place in 2014. The
deliveries of the optional VLGCs are expected to take place in 2014 and 2015 if
options are exercised. Hemen will be responsible for the performance guarantees
towards the yard on these contracts.
In September 2012, the Company cancelled the first  of the five VLCC newbuilding
contracts at Jinhaiwan ship yard due to the excessive delay compared to the
contractual delivery date. Unfortunately, the yard has referred the matter to
arbitration, however the Board is confident the Company has a strong case. The
Company's claim towards the yard is secured by refund guarantees.
As of November 28, 2012, the Company's newbuilding program comprised 16
newbuildings within the crude oil and petroleum product markets, four VLGCs and
four VLCCs. Total installments of $317.0 million have been paid and the
remaining installments to be paid amount to $935.0 million.
Corporate
156,000,000 ordinary shares were outstanding as of September 30, 2012, and the
weighted average number of shares outstanding for the quarter was 156,000,000.
The Market
Crude
The market rate for a VLCC trading on a standard 'TD3' voyage between the
Arabian Gulf and Japan in the third quarter of 2012 was WS 36, representing a
decrease of approximately WS 19 points from the second quarter of 2012 and a
decrease of approximately WS 22 points from the third quarter of 2011. Present
market indications are approximately $11,000 per day in the fourth quarter of
2012.
The market rate for a Suezmax trading on a standard 'TD5' voyage between West
Africa and Philadelphia in the third quarter of 2012 was WS 59.5, representing a
decrease of approximately WS 13.5 points from the second quarter of 2012 and a
decrease of WS 10 points from the third quarter of 2011. Current market forward
rates indicate TD5 Q4 returns in line with Q3.
Bunkers at Fujairah averaged $650/mt in the third quarter of 2012 compared to
$662/mt in the second quarter of 2012. Bunker prices varied between a low of
$590/mt on July 2 Â and a high of $697/mt on September 4.
The International Energy Agency's ("IEA") November 2012 report stated an OPEC
oil production, including Iraq, of 31.4 million barrels per day (mb/d) in the
third quarter. This was unchanged compared to the second quarter of 2012.
The IEA estimates that world oil demand averaged 90.1 mb/d in the third quarter
of 2012, which is an increase of 1.3 mb/d compared to previous quarter and the
IEA estimates that world oil demand will average approximately 89.7 mb/d in
2012, representing an increase of 0.9 percent or 0.8 mb/d from 2011. 2013 demand
is expected to be 90.5 mb/d.
The VLCC fleet totalled 617 vessels at the end of the third quarter of 2012, up
from 610 vessels at the end of the previous quarter. Ten VLCCs were delivered
during the quarter, three were removed. The order book counted 91 vessels at the
end of the third quarter, down from 95 orders from the previous quarter. The
current order book represents approximately 15 percent of the VLCC fleet.
According to Fearnley's, the single hull fleet is 22 vessels, one less than last
quarter.
The Suezmax fleet counts 462 vessels at the end of the third quarter, up from
459 vessels at the end of the previous quarter. Ten vessels were delivered
during the quarter whilst seven were removed. The order book counted 63 vessels
at the end of the third quarter, down from 79 vessels at the end of the previous
quarter. The current order book represents 14 percent of the total fleet.
According to Fearnley's, the single hull fleet stands unchanged at nine vessels.
Product
According to the IEA, gasoil demand as a whole is expected to expand more
rapidly than oil demand as a whole with growth of 1.1 percent in 2012 and 1.4
percent in 2013. Industrial growth in emerging markets, power generation in non
OECD countries and shift towards diesel for transportation combined with
stricter environmental regulations enhances this increase of gasoil demand.
Despite clear signs that Chinese economy is slowing, product demand picked up in
the second quarter of 2012. July 2012 numbers are showing an increase of 2.2
percent year-on-year which is the strongest growth since March 2012. Robust
gasoline demand growth of 16.4 percent (to 2.0 mb/d) led the way, supported by
still rapidly expanding vehicle usage. Petrochemical demand supported 12.5
percent growth in naphtha consumption to 0.5 mb/d.
Growing reliance on international trade for product supply is spreading oil
supply risk from the upstream to the downstream. Increased product market
integration means consumers in all regions are increasingly exposed to local
shortfalls in refining or product distribution, even as they remain exposed to
traditional crude supply disruption risk. This will be even more so when
supply/demand product balances start to tighten again.
The MR fleet totalled 1,503 vessels at the end of the third quarter of 2012,
down from 1,504 vessels at the end of the previous quarter. The orderbook
counted 143 vessels at the end of the third quarter, which represents
approximately ten percent of the MR fleet. The LR2 fleet totalled 216 vessels at
the end of the third quarter of 2012, up from 214 vessels at the end of the
previous quarter. The order book counted ten vessels at the end of the third
quarter. The current order book represents approximately 4.7 percent of the LR2
fleet.
LPG
2011 was one of the years with the largest year-on-year increase in VLGCs with
an increase of 11 percent compared  to a total of 34.2m tones in 2010. AG
export increased by 3.5 million tons, Algerian exports recovered by an increase
of 0.7m tons and USG exports increased by 0.5m tons.
IEA expects LPG to retain healthy growth. That includes ethane which is expected
to grow by 1.0 percent in 2012 (to 9.3 mb/d) and accelerating to 2 percent in
2013 (to 9.5 mb/d) due to that petrochemical usage continues to expand. In Japan
total oil demand increased by 3.7 percent year-on-year in the second quarter of
2012 of which LPG led the increase with 16.3 percent growth.
Total LPG exports are expected to reach 35.9million tons in 2012, an increase of
4.9 percent year-on-year. The growth is foremost driven by Quatar and UAE
increase of 1.0 million tons and 0.5 million tons, respectively. According to
Fearngas, exports are expected to remain unchanged in 2013, but increase by
11.1 percent in 2014 and 8.5 percent in 2014.
The VLGC fleet (60,000+ Cbm) totalled 144 vessels at the end of the third
quarter of 2012, an increase of one vessel from the previous quarter. The order
book counted 20 vessels at the end of the third quarter, which represents 13.9
percent of the VLGC fleet.
Strategy and Outlook
The Company's strategy is to create the leading global commodity shipping
company within three years.
We currently see newbuilding prices in several markets at historically low
levels, close to or in some cases even lower than the shipyards all-in
construction cost. This creates an attractive risk/reward balance and
interesting opportunities. The dramatic differential in fuel efficiency between
the next newbuilding generation and the existing fleet further highlights this
opportunity.
The Company now holds four VLGC newbuilding contracts and four optional
contracts. The high growth in LPG production, combined with a low newbuilding
orderbook and historically low new building prices for fuel efficient tonnage
creates a unique entry opportunity to and the Board is hopeful that Frontline
2012 can be one of the major players in this market within three years.
The Board still sees a challenging supply / demand situation for several of the
commodity shipping markets. This is particularly the case for the crude oil
tanker market as a consequence of the combined VLCC and Suezmax fleet increasing
by approximately 98 percent between 2004 and 2012 without a similar increase in
demand. Consensus is that recovery in the crude tanker market may take some time
and in order for recovery to happen a substantial scrapping must take place.
Frontline 2012's current operating fleet consists of VLCCs and Suezmaxes. Based
on results achieved so far in the fourth quarter the Board expects the operating
result in the fourth quarter to be in line with the third quarter.
Frontline 2012's growth strategy and the current weak market will limit the
dividend capacity in the short term. However, the Board sees clear potential
from asset appreciation. The Company is currently working with several
attractive proposals in order to increase the asset base further.
The full report is available for download in the link enclosed.
The Board of Directors
Frontline 2012 Ltd.
Hamilton, Bermuda
November 28, 2012
Questions should be directed to:
Jens Martin Jensen: Chief Executive Officer, Frontline Management AS
+47 23 11 40 99
Inger M. Klemp: Chief Financial Officer, Frontline Management AS
+47 23 11 40 76
Forward Looking Statements
This press release contains forward looking statements. These statements are
based upon various assumptions, many of which are based, in turn, upon further
assumptions, including Frontline Ltd's management's examination of historical
operating trends. Although Frontline Ltd believes that these assumptions were
reasonable when made, because assumptions are inherently subject to significant
uncertainties and contingencies which are difficult or impossible to predict and
are beyond its control, Frontline 2012 cannot give assurance that it will
achieve or accomplish these expectations, beliefs or intentions.
Important factors that, in the Company's view, could cause actual results to
differ materially from those discussed in this press release include the
strength of world economies and currencies, general market conditions including
fluctuations in charter hire rates and vessel values, changes in demand in the
tanker market as a result of changes in OPEC's petroleum production levels and
world wide oil consumption and storage, changes in the Company's operating
expenses including bunker prices, dry-docking and insurance costs, changes in
governmental rules and regulations or actions taken by regulatory authorities,
potential liability from pending or future litigation, general domestic and
international political conditions, potential disruption of shipping routes due
to accidents or political events, and other important factors described from
time to time in the reports filed by the Company.
3rd quarter 2012 results:
http://hugin.info/150498/R/1661515/538287.pdf
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(i) the releases contained herein are protected by copyright and
other applicable laws; and
(ii) they are solely responsible for the content, accuracy and
originality of the information contained therein.
Source: Frontline 2012 Ltd. via Thomson Reuters ONE
[HUG#1661515]