|
• Frontline 2012 was incorporated in Bermuda on December 12, 2011 and owns six VLCCs, four Suezmax tankers and five newbuilding contracts for VLCCs with contractual delivery in 2012 and 2013. Introduction Frontline 2012 Ltd. (the "Company" or "Frontline 2012") is a shipping company incorporated in Bermuda on December 12, 2011 which owns a total of ten crude oil tankers and five newbuilding contracts for VLCCs. The vessels have contractual delivery dates in 2012 and 2013. 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. with 50 percent shareholding. First Quarter 2012 Results The Board of Frontline 2012 announces net income of $2.4 million and earnings per share of $0.02 for the first quarter of 2012. The average daily time charter equivalents ("TCEs") earned in the spot and period market in the first quarter by the Company's VLCCs and Suezmax tankers were $27,900 and $21,200, respectively. The spot earnings for the Company's VLCC and Suezmax tankers were $28,000 and $21,200, respectively. As of March 31, 2012, the Company had cash and cash equivalents of $105.2 million. The Company has prepaid bank debt instalments for 2012 in exchange for a one year payment holiday in 2013. Following this the estimated daily cash cost break even rates for VLCCs and Suezmax tankers in 2012 are approximately $14,800 and $13,700, respectively. Newbuilding Program As of March 31, 2012, the Company's newbuilding program comprised of five VLCC tankers, which constitute a contractual cost of $525 million. Installments of $213 million have been paid and the remaining installments to be paid as of March 31, 2012 amount to $312 million. In the second quarter of 2011, Frontline Ltd reported some delays in the newbuilding program. The shipbuilding contracts include contractual compensation for late delivery from one to seven months delay and contractual cancellation rights after seven months delay. Corporate The Company has been managed by Frontline Management (Bermuda) Ltd., a wholly owned subsidiary of Frontline Ltd., from its incorporation. The Company aims to establish its own management subsidiary with a management team solely focused on its activities over time. 100,000,000 ordinary shares were outstanding as of March 31, 2012, and the weighted average number of shares outstanding for the quarter was 100,000,000. The Market The market rate for a VLCC trading on a standard 'TD3' voyage between the Arabian Gulf and Japan in the first quarter of 2012 was WS 56, representing an increase of approximately WS 2 points from the fourth quarter of 2011 and a decrease of approximately WS 2 points from the first quarter of 2011. Mainly due to increased bunker rates the TD3 flat rate was adjusted up by 19.2 percent from 2011 to 2012, hence the same WS gives 19.2 percent higher gross earnings in 2012 than in 2011. Current market indications are approximately $25,000/day in the second quarter of 2012. The market rate for a Suezmax trading on a standard 'TD5' voyage between West Africa and Philadelphia in the first quarter of 2012 was WS 82.2, representing a decrease of approximately WS 1 point from the fourth quarter of 2011 and the same as the first quarter of 2011. Mainly due to increased bunker rates the TD5 flat rate was adjusted up by 18.7 percent from 2011 to 2012, hence the same WS gives 18.7 percent higher gross earnings in 2012 than in 2011. Current market indications are approximately $16,000/day in the second quarter of 2012. Bunkers at Fujairah averaged $730/mt in the first quarter of 2012 compared to $672/mt in the fourth quarter of 2011; an increase of approximately $58/mt. The International Energy Agency's ("IEA") May 2012 report stated an average OPEC oil production, including Iraq, of 31.34 million barrels per day (mb/d) during February and March 2012. This was an increase of 820 kb/d compared to the fourth quarter of 2011. IEA further estimates that world oil demand averaged 89.50 mb/d in the first quarter of 2012, which is a decrease of 400 kb/d from previous quarter and an increase of 300 kb/d from first quarter 2011. Additionally, the IEA estimates that world oil demand will average approximately 90.0 mb/d in 2012, representing an increase of 0.9 percent or approximately 800 kb/d from 2011. The VLCC fleet counts 598 vessels at the end of the first quarter of 2012, up from 594 vessels at the end of the previous quarter. 11 VLCCs were delivered during the quarter whilst seven were deleted. The order book counted 111 vessels at the end of the first quarter, down from 123 orders from the previous quarter. Current order book represents about 18 percent of the VLCC fleet. According to Fearnleys the single hull fleet stands at 23 vessels. The Suezmax fleet counts 451 vessels at the end of the first quarter, up from 446 vessels at the end of the previous quarter. 14 vessels were delivered during the quarter whilst nine were deleted. The order book counted 96 vessels at the end of the first quarter, down from 114 vessels at the end of the previous quarter. No new orders were placed during the quarter and the current order book now represents 21 percent of the total fleet. According to Fearnleys the single hull fleet now stands at 9 vessels. Strategy and Outlook The Board has since the start up of Frontline 2012 discussed the Company's business model. The dramatic fall in newbuilding and secondhand prices in most of the commodity shipping market has created an attractive risk / reward balance and interesting opportunities. 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 should clearly limit the financial risk and the dramatic differential in fuel efficiency between the next newbuilding generation and the existing fleet further highlights this opportunity. The board sees however a challenging supply / demand situation for several of the commodity shipping markets. This is particularly the case for the tanker market where the combined VLCC and Suezmax fleet between 2004 and 2012 increased with 98 percent without being backed by a similar increase in demand. The commodity shipping industry is presently lacking leadership and consolidation strength. Several of the historically strong players are suffering from financial weakness created by overexpansion in the period between 2004 and 2010. The Board will, supported by these facts, adopt a new strategy where Frontline 2012's activities are expanded to include all commodity shipping business segments hereunder dry bulk, LPG as well as tankers. The target is to within three years create a global leading commodity shipping company based on modern, high quality and fuel efficient tonnage. The Board will, as the markets evolve, be open to consider spin offs and /or separation of the different business segments, but is of the opinion that a more diversified platform will be valuable and increase credibility versus counterparts and financial institutions in the challenging period ahead of us. Frontline 2012 will focus on building its fleet in the coming years. This will limit the dividend capacity in the short term. The ambition is to change this over time as the market improves and the company develops. The Company will have a strong focus on maximising return on equity and Frontline 2012 will to a certain extent use debt to optimize the return. The Company is presently in discussion to take over a total of 16 firm newbuilding contracts and eight fixed price optional contracts. These newbuilding contracts are within the crude and product markets and are arranged, financed and entered into by the Company's major shareholder Hemen Holding. In order to finance these contracts with a total contract value of USD 578 million the Company will seek to raise approximately USD 200 million in new equity. Hemen will subsequent to a potential transaction remain responsible for the performance guarantees versus the yards on these contracts. The development in the first quarter and so far in the second quarter has been stronger than expected when the Company was established. Based on the current outlook the second quarter is expected to be better than the first quarter. The Board is confident that we through aggressive expansion of economically efficient tonnage in the presently distressed market can create an advantage which over time can be converted into a superior long term return to our shareholders from cash flow as well as asset appreciation. The Board anticipates a high activity level in the year to come. Frontline Ltd. press release |
