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Frontline Ltd. (FRO)

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Wednesday 25 May, 2011

Frontline Ltd.

FRO - First Quarter 2011 Results






Highlights

  * Frontline reports net income attributable to the Company of $15.5 million
    and earnings per share of $0.20 for the first quarter of 2011.
  * Frontline announces a cash dividend of $0.10 per share for the first quarter
    of 2011.
  * In January 2011, Frontline sold its 2006-built VLCC Front Shanghai and
    recorded a gain of $7.9 million in the first quarter. In addition, a gain of
    $13.8 million will be recognized over the remaining period of the two year
    time charter-in.
  * In January 2011, Frontline sold all its shares in OSG. The sale generated
    $46.5 million in cash and the Company recorded a loss of $3.3 million in the
    first quarter of 2011.
  * The termination of the charters for the single hull VLCCs Ticen Sun (ex.
    Front Highness) and Front Ace took place in February and March 2011,
    respectively, and Frontline received a compensation payment of $5.3 million
    for the early termination of the charters, which was recorded in the first
    quarter of 2011.
  * In March 2011, the Company exercised its option to acquire the 2002-built
    VLCC Front Eagle and sold the vessel to an unrelated third party for $67.0
    million with expected delivery in the second quarter of 2011. The Company
    expects to record a gain of approximately $4.2 million in the second quarter
    and a gain of approximately $13.0 million over the period of the two year
    time charter-in.
  * In March 2011, the Company received $8.8 million being the market value
    adjustment to a funding agreement, which was terminated by the Company in
    February 2011. This amount was recorded in the first quarter of 2011 in
    accordance with the terms of the contract.
  * In April and May 2011, Frontline agreed with Ship Finance to terminate the
    long term charter parties between the companies for the OBO carriers Front
    Leader and Front Breaker, respectively. The Company expects to record losses
    of approximately $9.3 million and $8.0 million, respectively, for the two
    terminations in the second quarter of 2011.



First Quarter 2011 Results

The  Board of Frontline Ltd. (the "Company" or "Frontline") announces net income
attributable  to the Company  of $15.5 million  for the first  quarter of 2011,
equivalent to earnings per share of $0.20, compared with a net loss attributable
to  the Company of $11.8 million for the fourth quarter of 2010, equivalent to a
loss per share of $0.15.

The  increase in net income  attributable to the Company  compared to the fourth
quarter  is due to the gain on sale  of assets and other non-operating items and
improved  result from operations. The net  income attributable to the Company in
the first quarter includes a gain on sale of assets and amortization of deferred
gains  of $13.2 million, which  comprises a gain of  $7.9 million on the sale of
Front  Shanghai and a gain  of $5.3 million on  the termination of the Ticen Sun
and  Front Ace charters. The net income attributable to the Company in the first
quarter also includes non-operating gains of $8.1 million. This mainly relate to
a  market value adjustment  of $8.8 million  to a funding  agreement held by the
Golden  State companies in Independent  Tankers Corporation Limited ("ITCL") for
which  termination notice  was given  by the  Golden State companies in February
2011 and  the amortization of a  deferred gain of $3.1  million on the sale of a
newbuilding  contract, which were partially offset by  a loss of $3.3 million on
the sale of the Company's shares in Overseas Shipholding Group Inc. ("OSG").

The  loss attributable to the  Company in the fourth  quarter includes a gain on
sale  of assets and amortization  of deferred gains of  $4.6 million relating to
the  amortization  of  a  deferred  gain  on  three lease terminations. The loss
attributable  to the Company  in the fourth  quarter also includes non-operating
losses  of $5.2 million, which mainly relate to a loss of $9.4 million following
a  market price adjustment of  shares owned in OSG  partially offset by a market
value adjustment of $3.6 million to a guaranteed investment contract held by the
Windsor  companies in ITCL for which termination notice was given by the Windsor
companies in December 2010.

The  average  daily  time  charter  equivalents  ("TCEs") earned in the spot and
period market in the first quarter by the Company's VLCCs (including single hull
VLCCs),  Suezmax  tankers  and  Suezmax  OBO  carriers were $28,600, $17,300 and
$36,300 respectively, compared with $24,700, $16,500, and $45,100, respectively,
in  the preceding quarter. The spot earnings for the Company's double hull VLCCs
and Suezmax vessels were $27,400 and $16,000, respectively, in the first quarter
compared  with $22,600  and $15,200,  respectively, in  the fourth  quarter. The
Gemini  Suezmax  pool  had  spot  net  earnings  of $17,700 per day in the first
quarter  compared  with  $14,600  per  day  in the fourth quarter. The Company's
double  hull VLCCs, excluding  the spot index  related time charter vessels, had
spot  earnings of $28,200 per day in  the first quarter compared with $23,300 in
the fourth quarter.

Profit share expense of $2.3 million has been recorded in the first quarter as a
result  of the profit sharing agreement  with Ship Finance International Limited
("Ship Finance"), compared to $2.0 million in the fourth quarter. Ship operating
expenses  decreased by $2.5 million compared to the fourth quarter primarily due
to  a decrease in dry docking costs  of $3.1 million (two vessels were drydocked
in the quarter compared with three vessels in the preceding quarter).

Charter  hire expenses decreased  by $1.0 million  in the first quarter compared
with  the fourth  quarter, mainly  due the  redelivery of  Desh Ujaala offset by
charterhire on the Front Shanghai following the sale of the vessel.

Interest  income was $2.2  million in the  first quarter, of  which $2.1 million
relates  to restricted deposits held by  subsidiaries reported in ITCL. Interest
expense,  net of capitalized interest, was $36.1 million in the first quarter of
which $7.4 million relates to ITCL.

As  of March 31, 2011 the Company had total  cash and cash equivalents of $183.0
million  and restricted cash of $244.3  million. Restricted cash includes $180.0
million  relating to deposits in  ITCL and $62.0 million  in Frontline, which is
restricted under the charter agreements with Ship Finance.

In  May 2011, the Company  has average total  cash cost breakeven  rates for the
remainder  of 2011 on a TCE basis for VLCCs and Suezmax tankers of approximately
$29,700 and $24,700, respectively.


Fleet Development

In  January  2011, the  chartered-in  VLCC  Desh  Ujaala was re-delivered to the
owners  and the Company  sold its 2006-built  VLCC Front Shanghai.  The net sale
proceeds  for Front Shanghai were $91.24 million and after repayment of debt the
sale  generated $31.5 million  in cash. The  Company has in  connection with the
sale  agreed to charter back the vessel from  the new owner. The duration of the
time  charter is approximately two years at  a rate of $35,000 per day. Delivery
to  the new owners  and commencement of  the time charter  took place on January
26, 2011. The  Company recorded a gain of $7.9  million in the first quarter. In
addition,  a gain of $13.8  million will be recognized  on a straight line basis
over the remaining period of the time charter.

In  February 2011, the  Company agreed  with Ship  Finance to terminate the long
term  charter parties between the companies for  the single hull VLCCs Ticen Sun
(ex.  Front Highness)  and Front  Ace and  Ship Finance  simultaneously sold the
vessels  to unrelated third parties. The  termination of the charters took place
in  February  and  March  2011, respectively.  Ship  Finance made a compensation
payment  to  the  Company  of  $5.3  million  for  the  early termination of the
charters, which was recorded in the first quarter.

In  March 2011, the Company exercised its  option to acquire the 2002-built VLCC
Front  Eagle and sold the vessel to  an unrelated third party for $67.0 million.
The  Company has, in connection with the sale, agreed to charter back the vessel
from  the new owner. The duration of the time charter is approximately two years
at a rate of $32,500 per day. Delivery to the new owners and commencement of the
time  charter is expected  to take place  concurrently in the  second quarter of
2011. The  Company expects to record a gain of approximately $4.2 million in the
second   quarter.  In  addition,  the  Company  expects  to  record  a  gain  of
approximately $13.0 million over the period of the two year time charter-in.

In  March 2011, the bareboat charter out contract for the single hull VLCC Front
Lady was extended until August 2013.

In  April 2011, the Company agreed with Ship  Finance to terminate the long term
charter  party between the  companies for the  OBO vessel Front  Leader and Ship
Finance  simultaneously sold  the vessel.  The termination  of the charter party
took place on April 12, 2011 and the Company made a compensation payment to Ship
Finance  of $7.7  million for  the early  termination of  the charter party. The
Company  expects to record  a loss of  approximately $9.3 million  in the second
quarter of 2011.
In  May  2011, Frontline  agreed  with  Ship  Finance to terminate the long term
charter  party between the companies for the  OBO carrier Front Breaker and Ship
Finance  has simultaneously sold  the vessel. The  termination of the charter is
expected  to  take  place  in  May  2011 and  Frontline will make a compensation
payment  to Ship Finance of approximately $6.6 million for the early termination
of  the charter.  The Company  expects to  record a  loss of  approximately $8.0
million in the second quarter of 2011.


Newbuilding Program

As  of  March  31, 2011, Frontline's  newbuilding  program comprised two Suezmax
tankers  and five  VLCCs, which  constitute a  contractual cost of $650 million.
Installments  of  $198.5  million  have  been  made  on the newbuildings and the
remaining installments to be paid as of March 31, 2011 amount to $451.5 million,
with  expected payments of approximately  $106.9 million in 2011, $168.9 million
in 2012 and $175.7 million in 2013.

In  November 2010, the Company  secured pre- and  post-delivery financing in the
amount  of $147  million representing  70 percent of  the contract price for the
first two VLCCs to be delivered in 2012.

For  the three  remaining VLCCs  and the  two Suezmax  tanker newbuildings to be
delivered  between late 2012 and 2013, the Company  has not yet established pre-
and  post-delivery financing.  Based  on the secured  financing for the VLCCs we
assume  a 70 percent financing of current  market values for these newbuildings.
Based on these assumptions, Frontline has already paid the equity investment and
the remaining newbuilding installments are expected to be fully financed by bank
debt.


Corporate
In  January  2011, Frontline  sold  all  its  shares  in OSG. The sale generated
approximately  $46.5 million  in cash  and the  Company recorded  a loss of $3.3
million in the first quarter in other non-operating items.

On  April  11, 2011, the  Company  announced  that  it  had  approved a grant of
145,000 share  options under the terms of  the existing share option scheme. The
share  options will have a  five-year term and will  vest equally one third each
year over a three-year vesting period. The strike price for the options has been
set to NOK 131.10 per share.

On  May 24, 2011, the Board declared  a dividend of $0.10  per share. The record
date  for the dividend is June 8, 2011, the ex dividend date is June 6, 2011 and
the dividend will be paid on or about June 28, 2011.

77,858,502 ordinary  shares  were  outstanding  as  of  March  31, 2011, and the
weighted average number of shares outstanding for the quarter was 77,858,502.


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 2011 was  WS 58; equivalent to
$20,200/day;  representing an increase  of approximately WS  0.3 points from the
fourth  quarter of 2010 and a decrease of WS 31 points from the first quarter of
2010.

The  market rate for a  Suezmax trading on a  standard 'TD5' voyage between West
Africa  and Philadelphia in  the first quarter  of 2011 was WS 82; equivalent to
approximately  $19,800/day compared  to approximately  $21,700/day in the fourth
quarter  of 2010, representing a decrease of approximately WS 32 points from the
fourth  quarter of 2010 and a decrease of WS 11 points from the first quarter of
2010.

Bunkers  at Fujairah averaged  $600/mt in the  first quarter of 2011 compared to
$488/mt  in the  fourth quarter  of 2010; an  increase of approximately $112/mt.
Bunker  prices varied between a low of $517/mt at the beginning of January and a
high of $674/mt at the end of February. On May 23, 2011, the quoted bunker price
in Fujairah was 624.5/mt.

Philadelphia  bunkers  averaged  $604/mt  in  the  first  quarter,  which was an
increase  of  $101/mt  from  the  fourth  quarter  of 2010. Bunker prices varied
between  a low of $525/mt at  the beginning of January and  a high of $680/mt at
the  end of March. On May 23 , 2011, the quoted bunker price in Philadelphia was
639.5/mt.

The International Energy Agency's ("IEA") May 2011 report stated an average OPEC
oil  production, including Iraq,  of 29.7 million barrels  per day (mb/d) during
the  first quarter of the year. This  was an increase of 210,000 barrels per day
compared  to the fourth  quarter of 2010 and  an increase of 630,000 barrels per
day compared to the first quarter of 2010.

IEA  further estimates  that world  oil demand  averaged 88.4 mb/d  in the first
quarter  of 2011, representing  a decrease  of 1.0 mb/d  compared to  the fourth
quarter of 2010 and an increase of approximately 1.9 mb/d from the first quarter
of  2010. Additionally, the  IEA estimates  that world  oil demand  will average
approximately  89.2 mb/d  in  2011, representing  an  increase of 1.5 percent or
approximately 1.3 mb/d from 2010.

The  VLCC fleet totalled 565 vessels at the end of the first quarter of 2011, up
from  548 vessels at  the end  of the  previous quarter. 17 VLCCs were delivered
during  the  quarter  versus  an  estimated  25 at  the  beginning  of the year.
Throughout  2011 the current  estimate is  79 deliveries. The  orderbook counted
167 vessels  at the  end of  the first  quarter, down  from 184 orders  from the
previous  quarter. No new orders were placed  during the quarter and the current
orderbook  represents  approximately  30 percent  of  the VLCC fleet. During the
quarter no vessels were removed from the trading fleet and the single hull fleet
still  stands  counts  43 vessels  according  to  Fearnleys.  These  vessels are
currently not effectively traded.

The  Suezmax fleet totalled 420 vessels at the end of the first quarter, up from
410 vessels at the end of the previous quarter. 11 vessels were delivered during
the  quarter versus  an estimated  23 at the  beginning of  the year. Throughout
2011 the current estimate is 62 deliveries. The orderbook counted 135 vessels at
the  end  of  the  quarter,  down  from  146 vessels  at the end of the previous
quarter.  No new orders were placed during the quarter and the current orderbook
now  represents approximately 32 percent of the  total fleet. During the quarter
one  vessel was  removed from  the trading  fleet and  the single hull fleet now
stands at 13 vessels according to Fearnleys.


Strategy and Outlook

We focus on maintaining our position as the leading operator of VLCC and Suezmax
tankers.  However, Frontline will seek to optimize  the size of the fleet paying
attention  to the underlying cyclicality in the tanker business, including asset
prices.  The target is not to  be the largest owner of  tonnage, but to seek the
highest  return on the  investments over the  cycle. Such an  approach will from
time to time lead to divestments and to a more passive investment philosophy. By
following  a strategy of maintaining a certain fixed charter coverage percentage
for  the double hull  vessels, full fixed  charter coverage for  the single hull
vessels  and a high  fixed charter coverage  percentage for the  OBO vessels, we
provide downside protection in a weak tanker market as well as preserving upside
opportunities from the spot trading vessels in a strong tanker market.

We  maintain a lean organization  and use outsourcing extensively  to keep a low
cost  basis and  low cash  cost breakeven  rates. We  emphasize maintaining high
financial  flexibility and  a strong  balance sheet  and are  always looking for
enhancing shareholder value including a high quarterly dividend payout ratio.
IEA  estimated in their May 2011 report that  the global oil demand decreased by
1.0 mb/d  or 1.2 percent  in the  first quarter  of 2011 compared  to the fourth
quarter  of 2010. At  the same  time the  tanker market  experienced a growth in
fleet  supply in the first  quarter of 2011 due to  a high number of newbuilding
deliveries despite significantly fewer actual deliveries in the first quarter of
2011 than  anticipated, with  32 percent slippage  in the  VLCC segment  and 52
percent in the Suezmax segment. Henceforth the weak tanker market experienced in
the  second half of 2010 also continued in  the first quarter of 2011 and so far
into the second quarter of 2011.

The  newbuilding orderbook at the end of  the first quarter 2011 includes a high
number  of  expected  vessel  deliveries  in  2011 and 2012. However, the actual
number  of deliveries is likely to be lower due to the expected delays, slippage
and cancellations of newbuilding orders going forward.

The  International Monetary Fund forecasts world growth to rise by approximately
4.4 percent in 2011, and the IEA projects an increase in world's oil consumption
in  2011 by  1.3 mb/d,  compared  to  2010. This  is  not  enough  to absorb the
newbuilding orderbook, but will help mitigate.

It  is hard to  see a strong  recovery in the  tanker market as  long as the net
supply  of tonnage grows faster than the total  ton mile demand. As we stated in
our   fourth  quarter  2010 report,  Frontline  will  in  case  of  a  continued
challenging market situation focus on having financial flexibility and a healthy
balance  sheet to be better  positioned than peers to  tolerate a prolonged weak
trend  in  the  tanker  market  and  be  able  to  react  to  attractive  market
opportunities that may occur.

Based  on the Company's trading  results achieved so far  in the second quarter,
the  Board expects the  weak trend in  the first quarter  results to be extended
into the second 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   management's  examination  of  historical
operating  trends.  Although  Frontline  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 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 full report is available for download in the link enclosed.

The Board of Directors
Frontline Ltd.
Hamilton, Bermuda
May 24, 2011

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

This information is subject of the disclosure requirements pursuant to section
5-12 of the Norwegian Securities Trading Act.



1st quarter 2011 results: 


http://hugin.info/182/R/1518544/455045.pdf




This announcement is distributed by Thomson Reuters on behalf of 
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(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 Ltd. via Thomson Reuters ONE

[HUG#1518544] 
  



                                                                                                                                                                                                                                      

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