Frontline reported unaudited results for the three and six months ended June 30, 2019:
• Net income attributable to the Company was $1.1 million, or $0.01 per share, for the second quarter of 2019.
• Net income attributable to the Company was $4.2 million, or $0.02 per share adjusted for certain non-cash items for the second quarter of 2019.
• Reported spot average daily time charter equivalent (“TCE”) for VLCCs, Suezmax tankers and LR2/Aframax tankers in the second quarter were $25,600, $16,200 and $18,100, respectively.
• For the third quarter of 2019, we estimate spot TCE of $28,000 contracted for 83% of vessel days for VLCCs. The estimated spot TCE is provided using the load-to-discharge method of accounting. We expect the spot TCE for the full quarter to be lower primarily due to impact of ballast days at the end of the quarter.
• In May and June 2019, the Company entered into agreements to purchase a Suezmax tanker resale and a VLCC resale both under construction in Korea and expected to be delivered in May 2020. In June 2019, the Company ordered two LR2 newbuildings from SWS, China, expected to be delivered in January and March 2021.
• In August 2019, the Company entered into a non-binding term sheet together with Trafigura Group and Golden Ocean Group Limited (“Golden Ocean”) to establish a JV for the supply of marine fuels.
• In August 2019, the Company entered into a sale and purchase agreement with Trafigura Maritime Logistics (“TML”) to acquire ten Suezmax tankers built in 2019. Five vessels will be chartered back to Trafigura on three-year time charters at a daily rate of $28,400 with a 50% profit share above the base rate.
Robert Hvide Macleod, Chief Executive Officer of Frontline Management AS commented:
“Frontline is well positioned as we approach what we believe is an important inflection point in the tanker market. The increase in US crude oil production is driving tonne-miles, refineries are coming back from maintenance and the impact of the IMO 2020 is expected to be positive. We believe the tanker market dynamics present a compelling opportunity across multiple time frames. Our recent agreement to acquire 10 Suezmax tankers, done with the support of our largest shareholder, increases our earnings potential significantly at what we believe is an ideal time. Frontline is well positioned ahead of the IMO 2020 implementation date with an average fleet age below four years, significant exposure to favourable scrubber economics, and the ability to source various fuel types on a timely and competitive basis through our fuel joint venture with Trafigura Group.”
Inger M. Klemp, Chief Financial Officer of Frontline Management AS added:
“Frontline is unique in its ability to access capital from a variety of sources on attractive terms. Our strong standing with institutional lenders, combined with the financial support of our largest shareholder, allow us to react quickly to market changes and growth opportunities. We will continue to consistently focus on maintaining our competitive break even levels to ensure we are well positioned to generate significant cash flow and create value for our shareholders.”
The average daily time charter equivalents (“TCE”) earned by Frontline in the quarter ended June 30, 2019, the prior quarter and in the year ended December 31, 2018 are shown below, along with spot estimates for the third 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, interest on loans, bareboat hire and general and administrative expenses.
Spot estimates are provided using the load-to-discharge method of accounting. The rates quoted are for days currently contracted. The actual rates to be earned in the third 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 load to discharge accounting principles.
On May 15, 2019 the Company disclosed that spot TCE of $34,800 per day had been contracted for 63% of vessel days for our VLCCs. As described above, due to the limited number of additional laden days at the end of the second quarter, additional revenues booked were limited and as such the total revenues for the 63% of vessel days contracted was spread over 100% of the days in the quarter, resulting in a lower TCE per day by the end of the second quarter.
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 for the second quarter of 2019, the Company uses the total available days for the quarter and not just the number of days the vessel is laden.