Frontline 2012 Navigates Through Stellar Quarter, Vote on Merger around the Corner

Tanker owner and operator Frontline 2012 Ltd. has reported its strongest quarter ever with achieved net income from continuing operations of USD 61.9 million for the third quarter of 2015 and net income of USD 196.8 million for the nine months ended September 30, 2015 amid robust tanker market.

“The strength of the tanker market was driven primarily by high demand for low priced oil, a dynamic which continued from the second quarter. The high demand for oil has led to congestion in key ports around the world, which creates more demand for tanker vessels. Also of note, ballast speeds increased during the third quarter, returning to normal levels. We believe that this is a strong sign that capacity is being absorbed. Indeed, current fleet utilization is at levels not seen since 2009,” said Robert Hvide Macleod, Chief Executive Officer of Frontline Management AS.

According to Macleod, the average daily time charter equivalents (TCEs) earned through a combination of spot and time charters in the third quarter by the company’s VLCCs and Suezmax tankers were USD 47,500 and USD 29,000, respectively.

The product tanker market was also strong throughout the third quarter. TCEs earned through a combination of spot and time charters in the third quarter by the company’s LR2 tankers and MR tankers were USD 27,000 and USD 25,700, respectively.

“Demand for refined petroleum products remains robust. Africa and Australia imports are helping to drive the market and trading volumes are high worldwide on the back of strong refinery margins. Thus so far in the fourth quarter for our vessels employed in the spot market we have covered 76% of our VLCC operating days at TCE rates of approximately USD 48,400, 84% of our Suezmax operating days at rates of approximately USD 41,700, 65% of our LR2 tanker operating days at rates of approximately USD 36,900 and 54% of our MR tanker operating days at rates of approximately USD 19,000. The VLCC TCE rates for the third quarter are negatively impacted by dockings. For the remaining 24% open capacity of the fourth quarter we expect to achieve higher rates than what we have booked so far in the quarter,” he added.

The company said that the shareholders’ meetings of Frontline 2012 and Frontline to vote on the announced merger agreement are scheduled to be held on November 30, 2015.

Assuming shareholder approval and completion of the merger, Frontline together with its subsidiary Frontline 2012 will have a fleet of approximately 90 vessels, including vessels on commercial management, vessels on time charter in and newbuildings due for delivery in the next 24 months.

Frontline achieved net income attributable to the company of USD 17.4 million for the third quarter of 2015, the strongest third quarter since 2008, and net income attributable to the company of USD 65.9 million for the nine months ended September 30, 2015.

As of September 30, 2015, Frontline 2012’s fleet consisted of six VLCC, six Suezmax crude oil tankers, six MR tankers and four LR2 vessels with an aggregate carrying capacity of 3.5 million DWT.

The company’s newbuilding program comprised 14 LR2 newbuildings, six VLCC newbuildings and six Suezmax tanker newbuildings and the remaining commitments for the company’s 26 newbuilding contracts amounted to USD 1,386.5 million in the period 2015-2017.

The tanker operator cancelled all six of its MR tanker newbuilding contracts at STX Dalian and has received an aggregate refund of USD 44.3 million as of September 30, 2015, in respect of instalment payments made on five of the six contracts plus accrued interest. In October 2015, the company received a refund of USD 11.9 million from STX Dalian for the sixth and final newbuilding contract and expects to record a gain of USD 2.9 million in the fourth quarter. The company said that it has no outstanding claims in respect of cancelled newbuilding contracts.

The company delivered three VLGC newbuildings to Avance Gas Holding Ltd (AGHL) in the third quarter and recorded a gain of USD 29.7 million. In October 2015, the company delivered the eighth, and final, VLGC newbuilding to AGHL and expects to record a gain of approximately USD 9.2 million in the fourth quarter resulting from this delivery.