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HomeFinance & EconomyFrontline’s fleet of LR2 tankers takes center stage in Q2

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Frontline’s fleet of LR2 tankers takes center stage in Q2

Frontline reported unaudited results for the three and six months ended June 30, 2022:

Highlights

• Net income of $47.1 million, or $0.23 per basic and diluted share for the second quarter of 2022.
• Adjusted net income of $42.5 million, or $0.21 per basic and diluted share for the second quarter of 2022.
• Declared a cash dividend of $0.15 per share for the second quarter of 2022.
• Reported total operating revenues of $300.4 million for the second quarter of 2022.
• Reported spot TCEs for VLCCs, Suezmax tankers and LR2 tankers in the second quarter of 2022 were $16,400, $26,500 and $38,600 per day, respectively.
• For the third quarter of 2022, we estimate spot TCE on a load-to-discharge basis of $28,100 contracted for 73% of vessel days for VLCCs, $45,000 contracted for 73% of vessel days for Suezmax tankers and $46,200 contracted for 62% of vessel days for LR2 tankers.
• Announced the signing of a definitive combination agreement for a stock-for-stock combination between Frontline and Euronav NV (“Euronav”) (NYSE & Euronext: EURN) to create a leading global independent oil tanker operator which on a combined basis would own and operate 68 VLCCs and 56 Suezmax tankers, and 20 LR2/Aframax tankers.
• Took delivery of the VLCC newbuildings, Front Alta and Front Tweed, from Hyundai Heavy Industries (“HHI”) in April and June 2022, respectively.
• Entered into two senior secured term loan facilities in April and July 2022 for a total amount of up to $356.4 million at attractive terms to refinance two existing term loan facilities maturing in the first quarter of 2023.

Lars H. Barstad, Chief Executive Officer of Frontline Management AS, commented:
“Frontline’s fleet of LR2 tankers took center stage in the second quarter of 2022 during which period we achieved the highest quarterly TCE we have recorded on this vessel class. Sanctions on Russian oil and other products disrupted trade lanes for refined products globally, causing both refinery margins and freight rates to rise. Crude oil transport has also been affected, and Suezmax tankers have seen increased utilization and freight rates, throughout the second quarter.

Frontline is proud to show solid earnings in the second quarter and to be able to distribute dividends. We have over the last several quarters pointed to what we believe will be a cyclical up-turn for tankers, and this view has only been further cemented during the first half of the year. Supply and demand for oil and product transportation has gradually been tightening as the world recovers from the COVID-19 pandemic, and a pivotal point seems to have been found. With the lowest orderbook as a percentage of the fleet seen in decades, and oil supply and demand normalizing, we believe this bodes well for the years to come.

Frontline announced on the 11th of July its intention for a stock-for-stock combination with Euronav, with full support from the respective Board of Directors, and we are moving diligently forward to what ultimately will create an unparalleled service offering to our customers and the largest listed tanker owner in the world.”

Inger M. Klemp, Chief Financial Officer of Frontline Management AS, added:
“In April and July 2022, we entered into two senior secured term loan facilities for a total amount of up to $356.4 million to refinance two existing term loan facilities with total balloon payments of $324.6 million maturing in the first quarter of 2023. The refinancing will reduce our borrowing costs and what we believe to be industry leading cash break even rates and maximize potential cash flow per share after debt service costs. We expect to refinance one further existing term loan facility with total balloon payments of $33.7 million due in the first quarter of 2023 prior to maturity.”

The estimated average daily cash breakeven rates are the daily TCE rates our vessels must earn to cover operating expenses including dry docks, repayments of loans, interest on loans, bareboat hire, time charter hire and net general and administrative expenses for the remainder of the year.

Spot estimates are provided on a load-to-discharge basis, whereby the Company recognizes revenues over time ratably from commencement of cargo loading until completion of discharge of cargo. The rates reported are for all contracted days up until the last contracted discharge of cargo for each vessel in the quarter. The actual rates to be earned in the third quarter of 2022 will 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 on a load-to-discharge basis. Ballast days are days when a vessel is sailing without cargo and therefore, we are unable to recognize revenues on such days. Furthermore, when a vessel remains uncontracted at the end of the quarter, the Company will recognize certain costs during the uncontracted days up until the end of the period, whereas if a vessel is contracted, then certain costs can be deferred and recognized over the load-to-discharge period.

The recognition of revenues on a load-to-discharge basis 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 as compared to a discharge-to-discharge basis.

When expressing TCE per day the Company uses the total available days, net of off hire days and not just the number of days the vessel is laden.

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