Frontline Ltd. reported unaudited results for the three months and year ended December 31, 2018:
• Net income attributable to the Company was $25.4 million, or $0.15 per share, for the fourth quarter of 2018.
• Net income attributable to the Company was $26.3 million, or $0.15 per share adjusted for certain non-cash items for the fourth quarter of 2018.
• Reported spot average daily time charter equivalent (“TCE”) was $28,400 for VLCCs in the fourth quarter, impacted significantly by a high number of ballast days towards the end of the quarter, deferring revenue recognition into the first quarter of 2019. Reported spot TCE for Suezmax tankers and LR2/Aframax tankers were $26,100 and $18,700, respectively.
• Spot TCE of $41,300 contracted for 84% of vessel days for VLCCs, spot TCE of $33,300 contracted for 77% of vessel days for Suezmax tankers and spot TCE of $26,100 contracted for 73% of vessel days for LR2/Aframax tankers, estimated for the first quarter of 2019, including deferred revenue recognition from the fourth quarter of 2018.
• In November 2018, the Company extended the terms of its senior unsecured loan facility of up to $275.0 million with an affiliate of Hemen Holding Ltd. by 12 months to November 2020.
• In January 2019, the Company increased its ownership interest to 28.9% in Feen Marine Scrubbers Inc. (“FMSI”).
• In January 2019, the Company took delivery of the VLCC newbuilding Front Defender.
Robert Hvide Macleod, Chief Executive Officer of Frontline Management AS commented:
“The market improved in the fourth quarter before pulling back due to OPEC cuts, accelerated fleet growth and seasonal factors. In recent weeks, the market has reversed course, with US export volumes and VLCC rates doubling since January. We expect the market to remain volatile but continue to trend higher as the fleet prepares for new regulations and oil volumes return. Crude oil tanker demand will also receive a significant boost as refineries increase crude import runs to meet incremental demand for compliant fuels prior to the implementation of IMO 2020 regulations. Although there are always risks related to slowing global demand, multiple positive market drivers should result in strong year over year growth in earnings.”
Inger M. Klemp, Chief Financial Officer of Frontline Management AS added:
“Our current newbuilding program will be completed with the delivery of our last VLCC newbuilding expected in April 2019. With limited capital expenditure requirements going forward and backed by attractive financing, Frontline is committed to maintaining its healthy balance sheet. This supports our low breakeven rates and enables the Company to generate significant cash flow in a strengthening tanker market.”
The average daily time charter equivalents (“TCE”) earned by Frontline in the quarter ended December 31, 2018, the prior quarters and in the year ended December 31, 2017, are shown below, along with spot estimates for the first quarter of 2019 and the estimated average daily cash break-even (“BE”) rates for the remainder of 2019:
The estimated average daily cash break-even rates are the daily TCE rates the vessels must earn in order to cover operating expenses including dry docks, repayments of loans, interen loans, bareboat/tc hire and general and administrative expenses.
Spot estimates are provided using the load-to-discharge method of accounting as described in Note 2 to our Unaudited Condensed Consolidated Financial Statements. The rates quoted are for days currently contracted. The actual rates to be earned in the first quarter of 2019 will therefore depend on the number of additional days that we can contract, and more importantly the number of additional days that each vessel is laden. Therefore a high number of ballast days at the end of the quarter will limit the amount of additional revenues to be booked based on accounting under ASC 606.
The load-to-discharge method of accounting results in revenues being recognized over fewer days, but at a higher rate for those days. Over the life of a voyage there is no difference in the total revenues and costs to be recognized.
When expressing TCE per day, the Company uses the total available days for the quarter and not just the number of days the vessel is laden.