Highlights
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Frontline 2012 reports net income
of $0.7 million and earnings per share of $0.004 for the fourth
quarter of 2012.
-
Frontline 2012 reports net income
of $8.1 million and earnings per share of $0.06 for the year ended
December 31, 2012.
-
In January 2013, Frontline 2012
completed a private placement of 59 million new ordinary shares of
$2.00 par value at a subscription price of $5.25, raising $310
million in gross proceeds.
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In January 2013, the Company
cancelled the second 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 as of December 31, 2012
owned a total of ten crude oil tankers and 28 newbuilding contracts
within the crude oil, petroleum product, drybulk and Liquefied
Petroleum Gas ("LPG") markets.
As of today the newbuilding
program has increased to 53 firm newbuilding contracts.
The Company's sailing fleet is one
of the youngest in the industry with an average age of
approximately three years 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.
Preliminary
Fourth Quarter and Full Year 2012 Results
Frontline 2012 announces net
income of $0.7 million and earnings per share of $0.004 for the
fourth quarter of 2012. Frontline 2012 announces net income of $8.1
million and earnings per share of $0.06 for the year ended December
31, 2012.
The average daily time charter
equivalents ("TCEs") earned in the spot and period market in the
fourth quarter by the Company's VLCCs and Suezmax tankers were
$25,700 and $12,400, respectively, compared with $25,100 and
$10,400, respectively, in the preceding quarter. The spot earnings
for the Company's VLCC and Suezmax tankers were $24,100 and
$12,400, respectively, compared with $23,100 and $10,400,
respectively, in the preceding quarter.
As of December 31, 2012, the
Company had cash and cash equivalents of $132.7 million compared
with $184.6 million as of September 30, 2012. The Company generated
$9.2 million in cash from operating activities, used $74.6 million
in investment activities and increased bank borrowings by $13.5
million.
The Company 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 2013 on a TCE basis for its VLCCs and Suezmax
tankers are approximately $16,300 and $13,700, respectively.
Newbuilding
Program
As of December 31, 2012, the
Company's newbuilding program comprised 16 newbuildings within the
crude oil and petroleum product markets, four Capesize vessels,
four very large gas carriers or VLGCs and four VLCCs. Total
installments of $324.0 million have been paid and the remaining
installments to be paid amount to $1,112.5 million.
In January 2013, the Company
cancelled the second of the five VLCC newbuilding contracts at
Jinhaiwan ship yard due to excessive delay compared to the
contractual delivery date. The Company's claim towards the yard is
secured with refund guarantees from one of Chinas five largest
banks.
Since December 31, 2012 the
Company has negotiated and concluded a significant number of
additional newbuilding contracts. As of today the total newbuilding
program amounts to 53 vessels within the crude, product, LPG and
dry bulk segments. The total capital commitment for this
newbuilding program is $2,598 million out of which $315 million has
already been paid in.
The Company also holds a
significant number of fixed price options for newbuilding contracts
declarable in the coming months. The Company has in addition
entered into specific discussions with existing and new yard
relations with the target to increase the newbuilding orderbook
further. The Board will target newbuildings with deliveries in 2014
and 2015.
The final size of the total
newbuilding program including options is still under negotiation
and will be reported to shareholders as soon as practically
possible.
Corporate
156,000,000 ordinary shares were
outstanding as of December 31, 2012, and the weighted average
number of shares outstanding for the quarter was 156,000,000.
In January 2013, Frontline 2012
completed a private placement of 59 million new ordinary shares of
$2.00 par value at a subscription price of $5.25, raising $310
million in gross proceeds. The proceeds from the private placement
will be used to part finance new building investments.
The Market
Crude
The market rate for a VLCC trading
on a standard 'TD3' voyage between the Arabian Gulf and Japan in
the fourth quarter of 2012 was WS 42.8, representing an increase of
approximately WS 7 point from the third quarter of 2012 and a
decrease of approximately WS 15 points from the fourth quarter of
2011. Present market indications are $1,250 per day in the first
quarter of 2013.
The market rate for a Suezmax
trading on a standard 'TD5' voyage between West Africa and
Philadelphia in the fourth quarter of 2012 was WS 60.5,
representing an increase of one WS point from the third quarter of
2012 and a decrease of WS 9 points from the fourth quarter of 2011.
Current market forward rates are approximately $12,000 per day in
the first quarter of 2013.
Bunkers at Fujairah averaged
$615/mt in the fourth quarter of 2012 compared to $650/mt in the
third quarter of 2012. Bunker prices varied between a low of
$593/mt on November 5th and a high
of $655/mt on October 1st.
The International Energy Agency's
("IEA") February 2013 report stated an OPEC oil production,
including Iraq, of 30.9 million barrels per day (mb/d) in Q4. This
was a decrease of 0.5 mb/d compared to the third quarter of 2012,
due to lower Saudi Arabian production in November and
December.
The IEA estimates that world oil
demand averaged 91.0 mb/d in the fourth quarter of 2012, which is
an increase of 0.8 mb/d compared to previous quarter and the IEA
estimates that world oil demand averaged approximately 89.8 mb/d in
2012, representing an increase of 1.1 percent or 1.0 mb/d from
2011. 2013 demand is expected to be 90.7 mb/d.
The VLCC fleet totalled 622
vessels at the end of the fourth quarter of 2012, up from 617
vessels at the end of the previous quarter. 11 VLCCs were delivered
during the quarter, six were removed. The order book counted 81
vessels at the end of the fourth quarter, down from 91 orders from
the previous quarter. The current order book represents
approximately 13 percent of the VLCC fleet. According to Fearnleys,
the single hull fleet is 17 vessels, five less than last
quarter.
The Suezmax fleet counts 468
vessels at the end of the fourth quarter, up from 462 vessels at
the end of the previous quarter. 14 vessels were delivered during
the quarter whilst eight were removed. The order book counted 72
vessels at the end of the fourth quarter, which represents 15
percent of the total fleet. According to Fearnley's, the single
hull fleet has been reduced from nine to five vessels.
Product
Improved economic signals from US
and China, robust financial market activity and colder temperatures
in the Northern Hemisphere made the foundation for higher oil
demand in the fourth quarter of 2012. Stronger growth became
apparent for China, Brazil, Korea and Canada. Notable November
contractions were seen in the US and Saudi Arabia, as both suffered
from weather-related downturns. Particular sharp November
contractions in the US was seen in gasoil and residual fuel oil
demand which fell by 5 percent and 31.2 percent, respectively, year
over year. For January, the US Energy Department's Weekly Petroleum
Status report suggests that total products supplied increased 1.2
percent in 2012. The surprisingly large gains in transport fuel
deliveries including gasoline (+4.7 percent and jet/kerosene (+2.3
percent) supports the trend of strengthening consumer
sentiment.
Total worldwide products storage
now cover 30.4 days after a year end growth in middle-distillates
and gasoline while "other products" saw a draw. While plant
maintenance slashed US runs in January Asian runs hit new highs
ahead of Chinese maintenance. Strong Atlantic Basin gasoline
cracks, resilient gasoil cracks and narrowing fuel oil discounts
lifted January margins.
The MR fleet totaled 1,513 vessels
at the end of the fourth quarter of 2012, up from 1,503 vessels at
the end of the previous quarter. The order book counted 142 vessels
at the end of the fourth quarter, which represents approximately
ten percent of the MR fleet according to IEA.
The LR2 fleet totaled 217 vessels
at the end of the fourth quarter of 2012, up from 216 vessels at
the end of the previous quarter. The order book counted eight
vessels at the end of the fourth quarter, which represents
approximately 3.7 percent of the LR2 fleet according to IEA.
LPG
Spot rates have fluctuated greatly
through the year and with a seasonal dip in the fourth quarter of
2012 ended in line with 2011. LPG carrier demand is especially
linked to oil production since LPG is associated gases coming up
with the crude and natural gas streams. Saudi oil production
was strong during summer months but has recently been on a downward
trend. Saudi domestic consumption of LPG is also higher in winter
months, which reduce volumes available for exports.
During the fourth quarter of 2012
VLGCs steamed at 14.5kn on average compared to a designed speed of
16kn. The main barometer on the VLGC market is the naphtha/LNG
price ratio. LPG prices have increased due to lower export volumes
making naphtha more attractive for chemical producers. RS Platou
expects 2013 to stay in line with 2012 and sees interesting
opportunities arising from US shale gas long term, which is
expected to be very positive for VLGCs.
The VLGC fleet (60,000+ Cbm)
totaled 147 vessels at the end of the fourth quarter of 2012, an
increase of three vessels from the previous quarter. The order book
counted 23 vessels at the end of the fourth quarter, up from 20
vessels the previous quarter, representing 15.6 percent of the VLGC
fleet according to Platou.
Drybulk
Dry bulk transportation increased
by around seven percent in 2012, however, due to the high number of
new vessels entering the market, fleet utilization decreased. Given
a net fleet growth of approximately 11 percent, the estimated
utilization of the dry bulk fleet was on average 83 percent in
2012. Consequently spot earnings were low. The capesize and panamax
segments both earned on average approximately $7,650 per day
according to The Baltic Exchange.
Around 220 capesizes and 375
panamaxes were delivered in 2012, still this was 30 percent lower
than the official order book at the beginning of the year. At the
same time approximately 90 capesizes and 135 panamaxes were sold
for scrap. For the dry bulk fleet as a whole 35 million dwt were
scrapped against 95 million dwt of deliveries.
Deliveries of new vessels will
decrease sharply over the next 24 months. With the same delivery
ratio we have experienced over the last three years approximately
60 million dwt should be delivered this year, while the order book
for 2014 is 25 million dwt for the entire dry bulk sector. The low
spot market presently experienced and relatively high scrap prices
should encourage more scrapping. Most forecasters are expecting
scrapping to remain at similar levels as last year and consequently
net fleet growth could be as low as five percent during 2013.
The steel industry and energy coal
for utilities are accounting for almost 70 percent of dry bulk
transportation. For several years the importance of increased steel
production and energy consumption in China and the increased
dependence of this country for the dry bulk market have been well
known. Also in 2012 iron ore and coal imports showed a remarkable
growth. Iron ore increased by around eight percent while coal
imports increased by almost 30 percent year on year. This was in
spite of a much slower growth in steel and energy consumption (2
percent and 3.4 percent respectively)
There are a few factors which make
most analysts fairly optimistic for dry bulk demand growth going
forward. Quality of Chinese domestic iron ore production is on a
steady declining trend. Since 2007 China has invested roughly $85
billion in iron ore mining. Over the same period investments per
effective ton iron ore produced has increased from $15 per ton in
2007 to $60 per ton in 2012. Adjusting for falling Fe content,
effective iron ore production in 2012 is broadly at the same level
as in 2007. Even in a modest steel growth scenario for China most
forecasters believe in a continued strong growth in iron ore
imports.
According to Fearnleys the
Capesize fleet (150-200' dwt) totaled 1022 vessels at the end of
the fourth quarter of 2012, an increase of 3 vessels from the
previous quarter. The order book counted 94 vessels at the end of
the fourth quarter compared to 106 vessels the previous quarter,
representing 9.2 percent of the Capesize fleet.
Strategy and
Outlook
The Company's vision is to build
the leading global commodity shipping company within three years at
historically low newbuilding prices with sole focus on high
quality, modern, fuel efficient tonnage.
Frontline 2012's target is to
position the Company for an anticipated recovery of the shipping
markets in the next 2-3 years. In order to achieve this, the
Company follows the strategy of aggressive growth through placing
large orders for new efficient tonnage at historically low prices
with the main focus on crude tankers and dry bulk. The Company will
also selectively consider opportunities to invest in modern
existing tonnage but this is not likely to be a central part of the
strategy
The Company is currently in the
process of concluding one of the most aggressive new building
programs ever executed with vessels in the crude, product, LPG and
dry bulk segments.
The Board is of the opinion that the current
historically low newbuild prices and the significant fuel
efficiency of the new tonnage materially reduce the risk of this
major investment. Most of the tonnage the Company has ordered will,
based on the improved fuel efficiency and low capital cost, be
profitable at rate levels where existing tonnage barely covers
operating costs.
The global interest in the new building market has recently
increased although from a very low level. The low and, in some
cases, negative margins for the shipyards has led to a significant
scale down of yard capacity, particularly in China and Japan.
We have seen some upward price
movements in some of the sectors in the recent months however, no
significant movement should be expected before more activity is
generated from the Container sector.
The Board will in view of the
limited downside risk endeavor to optimize the Company's debt to
equity level with the target to increase the equity return going
forward. This includes aggressive use of debt financing and yard
financing.
The Board is of the opinion that
several of the shipping markets are massively oversupplied today
and that it may take some time before a reasonable market balance
occurs. Such a market balance will be dependent on the extent of
phase out of existing tonnage as well as global growth
conditions.
The Board is confident, however,
that the Company's aggressive ordering of fuel efficient tonnage at
historically low contracting cost will position Frontline 2012
favorably to our industry competitors and offer shareholders an
attractive long term return.
The Company will seek a listing in
New York within 10 - 16 months. As markets develops, the Board
targets a dividend strategy, and a refinement of the fleet profile
through sale of assets or spin offs.
Frontline 2012 has started to
cover some of the future interest risk by buying interest swaps.
The Board sees this as an attractive risk reward investment with
the long term target to reduce the Company's capital cost.
Frontline 2012's current operating
fleet consists of VLCCs and Suezmaxes. Based on results achieved so
far in the first quarter the Board expects the operating result in
the first quarter to be weaker than the fourth quarter.
The Board of Directors
Frontline 2012 Ltd.
Hamilton, Bermuda
March 18, 2013
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 with the United States Securities and
Exchange Commission.
4th Quarter 2012 Results
This
announcement is distributed by Thomson Reuters on behalf of Thomson
Reuters clients.
The owner of this announcement warrants that:
(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
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