FRNT - Third Quarter and Nine Months 2014 Results

Highlights

Frontline 2012 reports net income attributable to Frontline 2012 Ltd. of $59.5 million and earnings per share of $0.25 for the third quarter of 2014. Frontline 2012 reports net income attributable to Frontline 2012 Ltd. of $210.6 million and earnings per share of $0.86 for the nine months ended September 30, 2014. Frontline 2012 received $63.4 million in September 2014 in connection with the cancellation of two newbuilding contracts and recorded a gain of $31.1 million.Frontline 2012 cancelled the first, second and third MR tankers hulls D2171, D2172 and D2173 at STX Dalian in May, July and September 2014, respectively. Frontline 2012 paid $9.5 million on each of these and has received payments under the refund guarantees for D2172 and D2173 in total of $22.1 million including interest of $3.1 million. In September Frontline 2012 closed the first stage of the previously announced transaction with Knightsbridge Shipping Limited ("Knightsbridge"). Frontline 2012 received 31.0 million shares in Knightsbridge in exchange for 11 Capesize bulk carrier newbuildings and two Newcastlemax newbuildings.

Third Quarter and Nine Months 2014 Results  

On September 15, 2014, Frontline 2012 Ltd. (the "Company" or Frontline 2012") closed the first stage of the previously announced transaction with Knightsbridge. The Company received 31.0 million shares in Knightsbridge in exchange for 11 Capesize bulk carrier newbuildings and two Newcastlemax newbuildings and currently owns approximately 58 percent of the total shares outstanding in Knightsbridge. The Company has consolidated Knightsbridge as from September 15 as required by U.S. GAAP. The purchase price allocation, and calculation of goodwill, is preliminary and is subject to change. References in this press release to the Company refer to Frontline 2012 on an unconsolidated basis.

Frontline 2012 announces net income attributable to Frontline 2012 Ltd. of $59.5 million and earnings per share of $0.25 for the third quarter of 2014 compared with net income attributable to Frontline 2012 Ltd. of $136.6 million and earnings per share of $0.55 in the preceding quarter. Net income attributable to Frontline 2012 Ltd. in the third quarter includes a gain on newbuilding contracts and sale of assets of $31.1 million comprising a gain of $28.9 million in connection with the cancellation of the fourth newbuilding contract (J0028) at Jinhaiwan, a gain of $2.2 million in connection with the cancellation of the second newbuilding contract (D-2172) at Dalian.

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 $26,700 and $22,000 compared with $24,000 and $14,400 in the preceding quarter. The spot earnings for the Company's VLCC and Suezmax tankers were $24,700 and $22,000 compared with $22,300 and $14,400 in the preceding quarter. The daily earnings for the Company's MR product tankers were $13,000 compared with $15,800 in the preceding quarter.

Frontline 2012 announces net income attributable to Frontline 2012 Ltd. of $210.6 million and earnings per share of $0.86 for the nine months ended September 30, 2014 compared with net income attributable to Frontline 2012 Ltd.of $57.0 million and earnings per share of $0.26 in the nine months ended September 30, 2013. Net income attributable to Frontline 2012 Ltd. in the nine months ended September 30, 2014 includes a gain on newbuilding contracts and sale of assets of $158.6 million while the net income in the nine months ended September 30, 2013 included a gain of $57.3 million in connection with the cancellation of the second and third newbuilding contract at Jinhaiwan.

The average daily time charter equivalents ("TCEs") earned in the spot and period market in the nine months ended September 30, 2014 by the Company's VLCCs and Suezmax tankers were $30,300 and $20,900 compared with $20,700 and $12,500 in the nine months ended September 30, 2013. The spot earnings for the Company's VLCC and Suezmax tankers were $29,500 and $20,900compared with $16,700 and $12,500 in the nine months ended September 30, 2013. The daily earnings for the Company's MR product tankers were $15,300 in the nine months ended September 30, 2014.

The Company estimates average cash breakeven TCE rates for the remainder of 2014 for its VLCCs, Suezmax tankers, MR product tankers and LR2 tankers of approximately $23,500, $19,000, $13,800 and $13,500, respectively.

Newbuilding Program

The Company's newbuilding program, excluding newbuildings agreed to be sold and newbuilding contracts with STX Dalian and STX Korea, currently comprises 13 LR2 newbuildings. As of September 30, 2014 total installments of approximately $75.1 million have been paid for these 13 LR2 newbuilding contracts and the remaining installments to be paid amounted to approximately $524.8 million. The first LR2 from Longxue shipyard was delivered at the end of September 2014.

The 12 remaining Capesize newbuildings, which the Company has agreed to sell to Knightsbridge with expected closing in March 2015, are recorded as Newbuildings Held for Sale at September 30, 2014.

Subsequent to September 30, 2014, the Company has concluded four Suezmax tanker newbuilding contracts and the Company's newbuiding program currently comprises 17 newbuildings.

In 2012 and 2013, the Company cancelled all of its five newbuilding contracts at Jinhaiwan ship yard and has received a total refund to date of $296.2 million, of which $89.8 million has been used to repay debt. Total claims not yet received total $24.1 million.

The Company   cancelled the first, second and third MR tankers hulls D2171, D2172 and D2173 at STX Dalian in May, July and September 2014, respectively. We have paid three installments, total $9.5 million on each of these.  We have received payments under the refund guarantees for D2172 and D2173 in total of $22.1 million including interest of $3.1 million.

Hull D2171 is still in arbitration. The total outstanding including interest is approximately $11.2 million.

Corporate

On October 7, 2014, Knightsbridge and Golden Ocean Group Limited ("Golden Ocean") entered into an agreement and plan of merger (the "Merger Agreement") pursuant to which the two companies have agreed to merge, with Knightsbridge as the surviving legal entity (the "Combined Company").  The Combined Company will be renamed Golden Ocean Group Limited upon completion of the merger.  As a result of the expected merger, the Combined Company will become one of the world's leading dry bulk companies with a modern fleet of 72 vessels, of which 36 are newbuildings under construction as of September 30, 2014.  The merger is subject to approval by the shareholders of Golden Ocean and Knightsbridge in separate special general meetings expected to be held in the first quarter of 2015 and the merger is expected to close shortly thereafter. Completion of the merger is also subject to the execution of certain definitive documents, customary closing conditions and regulatory approvals.

The Company purchased 3,137,588 of its own shares in the three months ended September 30, 2014 for $22.0 million, 2,523,867 of its own shares in the three months ended June 30, 2014 for $19.8 million and 1,130,662 of its own shares in the three months ended March 31, 2014 for $8.6 million. These shares have been acquired further to a Board resolution to buy up to 49,820,000 shares. 242,307,883 ordinary shares were outstanding as of September 30, 2014, and the weighted average number of shares outstanding for the quarter was 243,327,609.

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 2014 was WS 45, representing an increase of WS 7 point from the second quarter of 2014 and WS 9 higher than the third quarter of 2013. The flat rate decreased by 6.7 percent from 2013 to 2014.

The market rate for a Suezmax trading on a standard 'TD5' voyage between West Africa and Philadelphia in the third quarter of 2014 was WS 71, representing an increase of WS 8 points from the second quarter of 2014 and an increase of WS 15 points from the third quarter of 2013. The flat rate decreased by 6 percent from 2013 to 2014.

Bunkers at Fujairah averaged $598/mt in the third quarter of 2014 compared to $601/mt in the second quarter of 2014. Bunker prices varied between a high of $628/mt on July 24th and a low of $575/mt on September 29th.

The International Energy Agency's ("IEA") November 2014 report stated an OPEC crude production of 30.5 million barrels per day (mb/d) in the third quarter of 2014. This was an increase of 0.4 mb/d compared to the second quarter of 2014.

The IEA estimates that world oil demand averaged 93.1 mb/d in the third quarter of 2014, which is an increase of 1.6 mb/d compared to the previous quarter. IEA estimates that world oil demand in 2015 will be 93.6 mb/d, representing an increase of 1.3 percent or 1.2 mb/d from 2014.

The VLCC fleet totalled 634 vessels at the end of the third quarter of 2014, four vessels up from the previous quarter. Four VLCCs were delivered during the quarter, none were removed. The order book counted 93 vessels at the end of the third quarter, which represents 15 percent of the VLCC fleet.

The Suezmax fleet totaled 450 vessels at the end of the third quarter, up two from the end of the previous quarter. Three vessels were delivered during the quarter whilst one was removed. The order book counted 44 vessels at the end of the third quarter, which represents approximately 10 percent of the Suezmax fleet.

Product

The market rate for an MR trading on a standard "TC2" voyage between Rotterdam and New York in the third quarter of 2014 was WS 96, representing a decrease of WS 9 from the second quarter of 2014 and a decrease of WS 17 from the third quarter of 2013. The flat rate decreased by 5.3 percent from 2013 to 2014.

Bunkers in Rotterdam averaged $561/mt in the third quarter of 2014 compared to $581/mt in the second quarter of 2014. Bunker prices varied between a high of $589/mt on July 1st and a low of $534/mt on September 22nd.

The MR product fleet totaled 1,673 vessels at the end of the third quarter of 2014, up from 1,645 vessels at the end of the previous quarter. The order book counted 363 vessels at the end of the third quarter, which represents approximately 22 percent of the MR fleet.

The LR2 fleet totaled 226 vessels at the end of the third quarter of 2014, up seven from the previous quarter. The order book increased by 34 to 63 vessels at the end of the second quarter, which represents approximately 28 percent of the LR2 fleet.

Strategy and Outlook

In October 2014, Knightsbridge and Golden Ocean entered into a Merger Agreement pursuant to which the two companies agreed to merge, with Knightsbridge as the surviving legal entity (the "Combined Company"). Frontline 2012 has, as the main shareholder of Knightsbridge, currently owning 58% of Knightsbridge, entered into a voting agreement to vote all of its shares in favor of the merger. The Combined Company will have a strong balance sheet and be one of the world's leading dry bulk shipping companies. With the current weakness in the dry bulk market, the Board believes there will be attractive consolidation opportunities going forward. It is expected that Frontline 2012 will distribute its shares in the Combined Company to its shareholders over time.

The Board has currently full attention on developing the Company's crude and product portfolio, consisting of a sailing fleet of 17 vessels comprising six VLCCs, four Suezmax tankers, six MR tankers and one LR2 tanker and a newbuilding program of 21 newbuilding contracts and options comprising 13 LR2 newbuildings and four Suezmax tanker newbuildings plus four options. The Board is considering various structures to build the Company into a leading tanker company. The Board believes there will be several interesting growth opportunities going forward. On this basis the Board has decided to invest in its crude fleet rather than to pay a cash dividend in the third quarter.

Frontline 2012 has secured financing for 10 of its 14 LR2 tankers with a competitive margin and a 20 year repayment profile through upsizing its existing loan facility for the 6 MR tankers.  At the same time the margin in the existing loan facility for the 6 MR tankers will be adjusted in line with the LR2 tankers.  Together with low operating cost and G&A, this financing should secure attractive cash cost break even rates for the Company going forward.

The Board is encouraged by the positive development in the crude and product tanker market in the fourth quarter. This is likely to give an improved operating result (excluding one time gains and losses) in the fourth quarter.

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 with the United States Securities and Exchange Commission.

The Board of Directors
Frontline 2012 Ltd.
Hamilton, Bermuda
November 24, 2014

Questions should be directed to:

Robert Hvide Macleod: Chief Executive Officer, Frontline Management AS
+47 23 11 40 84

Inger M. Klemp: Chief Financial Officer, Frontline Management AS
+47 23 11 40 76

3rd Quarter 2014 Results


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Source: Frontline 2012 Ltd. via Globenewswire
HUG#1873960