Highlights
-
Frontline 2012 reports a net loss of $4.8
million and a loss per share of $0.02 for the first quarter of
2013.
-
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.
-
In January 2013 the Company cancelled the second
of its five newbuilding contracts at Jinhaiwan due to excessive
delay and in April 2012 the Company received a refund of $94.0
million.
-
In April 2013, the Company cancelled the third
of its five VLCC newbuilding contracts at Jinhaiwan due to the
excessive delay.
-
As of today, the newbuilding program has
increased to 58 newbuilding contracts within the crude oil,
petroleum product, drybulk and Liquefied Petroleum Gas ("LPG")
markets.
Introduction
Frontline 2012 Ltd. (the "Company"
or "Frontline 2012") is a commodity shipping company incorporated
in Bermuda on December 12, 2011, which as of today owns a total of
ten crude oil tankers and 58 newbuilding contracts within the crude
oil, petroleum product, drybulk 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, with an
average age of 3.3 years operating in the spot and the period
markets.
The largest shareholder is Hemen
Holding Ltd. ("Hemen") with a shareholding of approximately 51
percent.
First
Quarter 2013 Results
Frontline 2012 announces a net
loss of $4.8 million and a loss per share of $0.02 for the first
quarter of 2013 compared with net income of $0.7 million and
earnings per share of $0.0046 for the fourth 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
$19,600 and $11,800, respectively, compared with $25,700 and
$12,400, respectively, in the preceding quarter. The spot earnings
for the Company's VLCCs and Suezmax vessels were $14,900 and
$11,800 respectively, compared with $24,100 and $12,400
respectively, in the preceding quarter.
As of March 31, 2013, the Company
had cash and cash equivalents of $297.0 million compared with
$132.7 million as of December 31, 2012. The Company raised $306.7
million (net) from the private placement in January, used $42.8
million in investment activities and repaid bank borrowings of
$43.2 million. The Company also used $56.3 million in cash in
operating activities primarily due to the reclassification of $63.6
million regarding the second cancelled newbuilding contract from
newbuildings to short term claim receivable.
The Company estimates average total cash cost
breakeven rates for the remainder of 2013 on a TCE basis for its
VLCCs and Suezmax tankers of approximately $16,700 and $13,700,
respectively.
Newbuilding
Program
In January and April 2013, the
Company cancelled the second and third of the five VLCC newbuilding
contracts at Jinhaiwan ship yard (hulls J0026 and J0027) due to
excessive delay. The Company's claims against the yard are secured
with refund guarantees from some of Chinas five largest banks.
In April 2013, the Company
received a refund of $94.0 million representing installments paid
and accrued interest for the cancellation of hull J0026. $44.9
million of the refund was used to repay debt associated with the
newbuilding. The Company's balance sheet carried an amount of $63.6
million in Newbuildings at December 31, 2012 in respect of hull
J0026 and expects to record a gain of approximately $30.4 million
in the second quarter of 2013.
As of March 31, 2013 , the
Company's newbuilding program totaled 53 vessels and comprised 18
newbuildings within the crude oil and petroleum product markets, 24
Capesize vessels, eight very large gas carriers or VLGCs and three
VLCCs. Total installments of $349.0 million have been paid and the
remaining installments to be paid amount to $2,249.0 million.
As of March 31, 2013, the Company
had $300.6 million in net debt and a further $2,249.0 million in
remaining installments under its new building program.
Since March 31, 2013 the Company
has negotiated and concluded additional newbuilding contracts and
cancelled one additional VLCC. As of today the total firm
newbuilding program comprises 58 vessels. The total capital
commitment is $2,768 million.
The Company also holds fixed price
options for newbuilding contracts declarable in the coming months.
The Company has in addition entered into specific discussions with
existingandnew yard relations with the target to increase the
newbuilding orderbook further. The Board has so far targeted new
buildings with deliveries in 2014 and 2015.
Frontline 2012 has 14 newbuilding
contracts with STX (Dalian) Shipbuilding Co., Ltd., which has
encountered financial difficulties, and we are following the
situation closely. Frontline 2012 will make every effort to ensure
that STX Offshore & Shipbuilding Co., Ltd. and STX (Dalian)
Shipbuilding Co., Ltd deliver the new buildings, which they are
contractually committed to. The delivery of six of these vessels
has a contractual commitment from STX Offshore & Shipbuilding
Co., Ltd., Korea in addition to STX (Dalian) Shipbuilding Co.,
Ltd.
Corporate
215,000,000 ordinary shares were
outstanding as of March 31, 2013, and the weighted average number
of shares outstanding for the quarter was 208,444,445.
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 $309.8
million in gross proceeds. The proceeds from the private placement
will be used to part finance new building investments.
In March 2013, the Company prepaid
bank debt equal to ordinary loan amortization for 2013 in exchange
for amendments to the loan-to-value clauses in three of the
Company's loan agreements
In April 2013, the Board of
Frontline 2012 Ltd appointed Carl Erik Steen as a Director to fill
a vacancy on the Board.
Mr Steen graduated in 1975 from ETH Zurich Switzerland with a M.Sc.
in Industrial and Management Engineering. He then worked as a
consultant in various Norwegian companies before joining I.M.
Skaugen as a Director in 1978. In 1983, Mr Steen moved to
Christiana Bank Luxembourg and in 1987 returned to Norway to
establish the international shipping desk of Christiania Bank. In
1992, Mr. Steen was appointed Executive Vice-President with the
responsibility of Christiania Bank's Shipping, Offshore and
International activities. From January 2001 until February
2011, Mr Steen was head of Nordea Bank's Shipping, Oil Services
& International Division. Mr Steen is also a board member
of Eitzen Chemical ASA, Wilhelm Wilhelmsen Holding ASA, RS Platou
ASA and Seadrill Limited.
The Market
Crude
The market rate for a VLCC trading
on a standard 'TD3' voyage between the Arabian Gulf and Japan in
the first quarter of 2013 was WS 35, representing a decrease of
approximately WS 7.8 point from the fourth quarter of 2012 and a
decrease of approximately WS 21 points from the first quarter of
2012. The flat rate increased by 9.1% from 2012 to 2013.
The market rate for a Suezmax
trading on a standard 'TD5' voyage between West Africa and
Philadelphia in the first quarter of 2013 was WS 57.5, representing
a decrease of three WS points from the fourth quarter of 2012 and a
decrease of WS 25 points from the first quarter of 2012. The flat
rate increased by 9.3% from 2012 to 2013.
Bunkers at Fujairah averaged
$633/mt in the first quarter of 2013 compared to $615/mt in the
fourth quarter of 2012. Bunker prices varied between a low of
$606/mt on January 2nd and a high
of $663/mt on February 18th.
The International Energy Agency's
("IEA") May 2013 report stated an OPEC oil production, including
Iraq, of 30.5 million barrels per day (mb/d) in Q1. This was a
decrease of 0.4 mb/d compared to the fourth quarter of
2012.
The IEA estimates that world oil
demand averaged 89.8 mb/d in the first quarter of 2013, which is a
decrease of 1.2 mb/d compared to the previous quarter. IEA
estimates that world oil demand in 2013 will be 90.6 mb/d,
representing an increase of 0.9 percent or 0.8 mb/d from 2012.
The VLCC fleet totalled 634
vessels at the end of the first quarter of 2013, up from 622
vessels at the end of the previous quarter. 14 VLCCs were delivered
during the quarter, two were removed. The order book counted 81
vessels at the end of the first quarter, unchanged from the
previous quarter. The current order book represents approximately
13 percent of the VLCC fleet. According to Fearnleys, the single
hull fleet is 15 vessels, two less than last quarter.
The Suezmax fleet totaled 480
vessels at the end of the first quarter, up from 468 vessels at the
end of the previous quarter. 14 vessels were delivered during the
first quarter whilst two were removed. The order book counted 54
vessels at the end of the first quarter which represents
approximately 11 percent of the Suezmax fleet. According to
Fearnley's, the single hull fleet stands unchanged at five
vessels.
Product
According to IEA, gasoline is
expected to lead non-OECD demand growth over the next years. In
2012, strong gasoline-led non-OECD demand and contraction in OECD
caused a shift in distribution of products. Gasoil which has in
earlier years risen faster than any other product was overtaken by
gasoline in 2012, a trend that may be replicated in 2013. Near
recessionary conditions in many OECD nations combined with
relatively subdued non-OECD gasoil demand, led to global gasoil
demand growing less than previous years.
The two regional markets with the
highest dieselization rates in the transportation sector were also
those who performed worst economically, Europe and OECD Asia
Oceania. This factor, coupled, with the clear preference for
gasoline in still thriving Chinese and Saudi Arabian transportation
sector, boosted gasoline demand to such a degree that it outpaced
gasoil. This trend is forecast to hold in 2013.
Total worldwide oil stocks
decreased by 8.1mb during the first quarter of 2013. On a forward
basis, OECD product stocks cover 31.2 days
The MR fleet totaled 1,524 vessels
at the end of the first quarter of 2013, up from 1,513 vessels at
the end of the previous quarter. The order book counted 149 vessels
at the end of the first quarter, which represents approximately ten
percent of the MR fleet.
The LR2 fleet totaled 212 vessels
at the end of the first quarter of 2013, down from 217 vessels at
the end of the previous quarter. The order book counted 13 vessels
at the end of the first quarter, which represents approximately 6.1
percent of the LR2 fleet.
LPG
The beginning of 2013 saw an
increase of LPG and Ethane demand of 2.75 percent compared to the
same period in 2012. Q1 2013 spot rates have been impacted by a
reduction in OPEC crude oil production, which influences the LPG
production in the Middle East. Throughout 2012, VLGCs trading in
the Western Hemisphere commanded an earnings premium compared to
the Eastern Hemisphere according to BRS. Recently we have seen an
increase in monthly earnings.
Traditionally naphtha has
dominated the global petrochemical industry, but IEA is forecasting
a degree of substitution to LPG, particularly in North America. LPG
saw its market share increase from 7 to 9 percent from 2000 to
2010. Through to 2018, LPG's market share is forecast to rise
further on the back of low-priced and plentiful US supplies, which
has spurred a revival on the North American petrochemical sector.
In the coming period the US dominates the supply side, while China
and the Middle East dominate the demand side.
The VLGC fleet (60,000+ Cbm)
totaled 148 vessels at the end of the first quarter of 2013, an
increase of three vessels from the previous quarter. The order book
counted 24 vessels at the end of the first quarter, up from 23
vessels the previous quarter, representing 16.2 percent of the VLGC
fleet according to Platou.
Drybulk
The dry bulk market showed few
signs of recovery during the first quarter of 2013. The smaller
sizes performed better than the Capesize segment also in absolute
terms for most of the quarter. A Capesize earned on average $6,015
per day according to the Baltic Dry Index, which did not cover
operating expenses for many owners.
The Capesize segment has
underperformed mainly due to that iron ore exports out of Brazil
have been low. There is a strong correlation between the Brazilian
iron ore export and the Cape size spot market due to the long
sailing distances. In addition, Fortescue delayed their ramp up of
production in Australia from March until May 2013 and Colombian
coal exports were almost 70 million metric ton lower on an
annualized basis, partly due to strikes during first quarter of
2013.
The dry bulk market is
increasingly dependent on the development of the Chinese economy.
During 2012 the Chinese iron ore and coal imports in combination
increased more than 12 percent, while preliminary data show an
increase of about six percent for the first quarter of 2013.
Historically the first quarter is the slowest quarter of the year,
which is mainly due to adverse weather in the Southern
Hemisphere.
Development in international coal
and iron ore prices will have a great impact on the dry bulk market
going forward. Presently there is a positive arbitrage both for
steel producers and utilities compared to domestic Chinese iron ore
and coal. With new iron ore capacity from Australia, Brazil and
West Africa coming on stream the next three years and poorer
quality of Chinese domestic iron ore, it is expected that imports
of iron ore to China will increase.
According to Fearnley's the
Capesize fleet (150-200'dwt) totaled 1,028 vessels at the end of
the first quarter of 2013, an increase of 6 vessels from the
previous quarter. The order book counted 98 vessels at the end of
the first quarter, compared with 94 vessels the previous quarter,
representing 9.5 percent of the Capesize fleet.
Strategy and
Outlook
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
is restored. The Board believes that such a market balance will be
dependent on the extent of phase out of existing tonnage as well as
global growth conditions.
The freight market continues to
show weakness, however, there is a clear indication that we have
reached a level where rates are unlikely to decrease further.
The Board is getting increasingly
confident about the development in the LPG segment where the
Company has eight newbuildings to be delivered in approximately the
next 2 years. This market appears well balanced and there are clear
signs that positive developments have started. This trend is driven
by increased LPG production as well as new trading patterns mainly
driven by development in the US.
Frontline 2012's target is to
build the leading global commodity shipping company within three
years and position the Company for an anticipated recovery of the
shipping markets in the next 2 to 3 years. In order to achieve
this, the Company follows a strategy of aggressive growth through
the placement of large orders for new efficient tonnage at
historically low prices with the main focus on tankers and dry bulk
carriers.
The Board is confident that the
historically low contracting cost and the significant fuel
efficiency of the new tonnage materially reduces the risk of the
Company's aggressive ordering and will position Frontline 2012
favorably to industry competitors and offer shareholders an
attractive future reward.
The value of the Company's newbuilding program
increased in the first quarter of 2013 and the positive development
has continued in the second quarter. This is in line with the
Company's expectation that newbuilding prices are likely to firm up
before the freight market. The Board believes there is currently
additional value in the newbuildings compared to contract
price.
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 and yard
financing.
The Company will seek a listing in
New York within 8 to 14 months. As the Company develops, the Board
targets a dividend strategy, and a refinement of the fleet profile
through sale of assets or spin offs.
Frontline 2012 operates a fleet
consisting of 6 VLCCs and 4 Suezmax tankers and owns 58 newbuilding
contracts. Due to the composition of Frontline 2012, the Company
has limited exposure to the current weak freight market and the
major factors driving the shareholder value currently is the
development in the newbuilding prices which shows a positive trend
and the recovery of the freight markets at the time the new
buildings are delivered.
The major part of the fleet will be delivered in 2014 and
2015, when it is expected that freight market will have
strengthened somewhat and thereby creating better operating
economics. Due to the low ordering prices and high fuel efficiency
of our new buildings Frontline 2012 will have significant lower
long term capital cost and better operating economics than the
majority of our main competitors.
The Company has received financing
proposals for the MR tankers to be delivered this year and expects
financing to be completed within the next couple of months. Debt
per vessel, margin and other terms are in line with or better than
originally anticipated.
The Board is confident that the
current remaining newbuilding commitment can be financed through a
combination of cash, debt and only a limited new equity need, if
any at all.
The Board is pleased with the
execution of the Company's strategic plan, and looks optimistically
on the opportunity to create solid return to our shareholders over
the next three to five years.
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
June 6, 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
1st Quarter 2013 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
HUG#1707640
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