UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of August 2006
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Frontline Ltd.
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(Translation of registrant's name into English)
Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton, HM 08, Bermuda
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(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F
Form 20-F [X] Form 40-F [ ]
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Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes [ ] No [X]
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If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82-
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Item 1. INFORMATION CONTAINED IN THIS FORM 6-K REPORT
Attached as Exhibit 1 is a copy of the press release of Frontline Ltd. (the
"Company") dated August 22, 2006.
FRONTLINE LTD.
INTERIM REPORT APRIL - JUNE 2006
Highlights
o Frontline reports net income of $68.6 million and earnings per share
of $0.92 for the second quarter of 2006.
o Frontline reports half year results of $282.6 million and earnings per
share of $3.78.
o Frontline announces a cash dividend of $1.50 per share.
Second Quarter and Six Months Results
The Board of Frontline Ltd. (the "Company" or "Frontline") announces net income
of $68.6 million for the second quarter of 2006, equivalent to earnings per
share of $0.92. Operating income for the quarter was $144.9 million compared to
$270.5 million in the first quarter. This reflects the decrease in the market
during the second quarter as well as the fact that Frontline as a function of
the weaker market in the quarter decided to accelerate the drydocking of several
vessels. A total of six ships were drydocked in the quarter creating
approximately 220 days in lost income as well as higher operating cost linked to
the fact that the drydocking cost were expensed in the quarter.
The average daily time charter equivalents ("TCEs") earned in the spot and
period market by the Company's VLCCs, Suezmax tankers and Suezmax OBO carriers
were $50,600, $30,600 and $30,100 respectively compared with $73,000, $49,700
and $31,700 respectively in the first quarter. The income shows an increased
differential in earnings between single and double hull tonnage particulary in
the Suezmax segment.
Operating income in the second quarter includes a $9.8 million gain on the sale
of two VLCC newbuilding contracts.
Interest income was $12.4 million in the quarter, of which $6.2 million relates
to restricted deposits held by subsidiaries reported in Independent Tankers
Corporation ("ITC"). The Company recorded interest expense of $53.4 million in
the second quarter of which $15.2 million relates to ITC.
The total for other financial items in the second quarter was a gain of $3.7
million compared to a gain of $15.0 million in the first quarter of 2006.
Valuation gains of $2.9 million were recorded in interest rate swaps in the
second quarter compared to $5.2 million in the first quarter. As at June 30,
2006, the Company had interest rate swaps with a total notional principal of
$742.0 million all of which relates to Ship Finance International Limited ("Ship
Finance"). Other financial items in the first quarter included a gain of $3.6
million in relation to interest rate swaps which terminated in the first
quarter. The valuation of freight future agreements to market value has resulted
in a loss of $5.2 million compared to a gain of $0.3 million in the first
quarter. Dividends received from marketable securities in the second quarter
totalled $5.6 million compared to $7.7 million in the first quarter.
Frontline announces net income of $282.6 million for the six months ended June
30, 2006, equivalent to earnings per share of $3.78. The average TCEs earned in
the spot and period market by the Company's VLCCs, Suezmax tankers, and Suezmax
OBO carriers for the six months period ended June 30, 2006 were $61,900, $40,100
and $30,900, respectively.
On June 30, 2006, Ship Finance, which is consolidated by Frontline, purchased
the jack up rig Seadrill 3 for $210.0 million and subsequently leased the rig
back to SeaDrill Limited. In accordance with U.S. generally accepted accounting
principles the Company's investment in Seadrill 3 is being accounted for under
the equity method. As a result, an investment in associated companies of $45.9
million has been recorded and the results of the rig owning entity will be
recorded under Share of results from associated companies.
As at June 30, 2006, the Company had total cash and cash equivalents of $739.0
million which includes $625.1 million of restricted cash. Restricted cash
includes $335.2 million relating to deposits in ITC and $274.4 million in
Frontline Shipping Limited and Frontline Shipping II Limited. As of August 2006,
the Company has cash breakeven rates on a TCE basis for VLCCs and Suezmaxes of
$28,252 and $21,283 respectively.
Corporate and Other Matters
On April 1, 2006, the Suezmax Front Voyager (former Virgo Voyager) was
redelivered to the Company from a long term bareboat charter and is now being
traded on the spot market.
Regretfully the Company's vessel Front Sunda suffered an explosion causing a
fatality whilst in ballast condition in the South China Sea June 19, 2006.
Despite an extensive search and rescue operations a crew member was not
recovered and is still missing. Front Sunda was subsequently towed to Singapore
where she is anchored after been gas freed, cleaned and prepared for repairs.
Frontline is currently in discussion with the insurance underwriters, and is
considering converting the vessel to a heavylift vessel.
In June 2006, Frontline sold two VLCC newbuilding contracts for a profit of $9.8
million.
In June 2006 Frontline increased their exposure to the VLCC market through
chartering in two double hull VLCCs from Knightsbridge Tankers Limited, for a
four year period and a five year period, respectively. These charters commence
in 2007.
As previously announced, in June 2005 Ship Finance sold Front Hunter to an
unrelated third party for a net gain of $25.3 million which was deferred. The
charter and management agreements with Frontline relating to this vessel were
terminated and Ship Finance paid Frontline a $3.8 million termination fee in
addition to Frontline having the right to sell to Ship Finance a newbuilding
VLCC and charter it back at reduced charter rates. In June 2006 the parties
agreed to cancel the agreement and to split the profit in accordance with the
profit split agreement (80 percent to Frontline and 20 percent to Ship Finance),
but adjusted for the residual value belonging to Ship Finance. The cancellation
of this agreement resulted in a net payment of $16.3 million to Frontline in
addition to the earlier termination payment of $3.8 million. Ship Finance booked
a net gain of $9 million relating to the sale of Front Hunter and cancellation
of the option agreement in the second quarter. This influences the Frontline
consolidated accounts with an increased recorded minority interest in the
approximate amount of $8 million.
In early July 2006, the Company took delivery of the vessel Front Beijing, the
first of two VLCC newbuildings being built at Nantong Cosco Khi Ship Engineering
in China. The delivered cost of this newbuilding is approximately $80 million
which is very attractive compared to existing newbuilding prices.
In July 2006, Frontline agreed to purchase two additional VLCC newbuildings to
be delivered in 2010/2011 and two Suezmax newbuildings and entered into options
for four more Suezmaxes to be delivered in the period November 2008 and February
2009. It has since been announced that Frontline will exercise these options.
In August 2006, Frontline announced that it had sold its entire holding of
3,860,000 shares in General Maritime Corporation ("Genmar") for a price of $40
per share. Frontline will record a gain of approximately $9.7 million in the
third quarter as a result of this sale. Frontline has, during the holding
period, also recorded dividend income on the same investment of approximately
$13.3 million.
On August 22, 2006, the Board declared a dividend of $1.50 per share. The record
date for the dividend is September 1, 2006, ex dividend date is August 29, 2006
and the dividend will be paid on or about September 18, 2006.
At June 30, 2006, 74,825,169 ordinary shares were outstanding and the weighted
average number of shares outstanding for the quarter and six months then ended
was also 74,825,169.
The Market
The VLCC market started at the weakest point in April where the lowest rate in
the second quarter was witnessed with about World Scale ("WS") 55, for the
benchmark route MEG to Japan. This equated to a TCE of approximately $18,500 per
day. The rates firmed in a slow but steady manner for mentioned route until mid
May for thereafter to accelerate to its peak at about WS 120 ($80,500 per day)
in the third week of June. Following the peak, the VLCC market softened seeing a
steady decline until quarter end where fixtures where conducted at about WS 97
($58,500/day). The average rate from the MEG to Japan in the second quarter of
2006 was about WS 80 ($41,700 per day), compared to about WS 71 ($32,600 per
day) in the second quarter of 2005.
The Suezmaxes opened the second quarter with its lowest quote for the quarter at
about WS 94 ($21,400 per day) early in the second week of April for the
benchmark route WAF to USAC. The market firmed during the next two weeks to
about WS 152 ($45,500 perday) and thereafter taking a dip to about WS 130
($36,200 perday) in early May. The market subsequently firmed back up again and
was stable moving sideways at about WS 150 throughout most of May. Rates
declined to about WS 110 ($28,000 /day) in mid June and thereafter to peak a
week from the quarter end at about WS 178 ($ 59,300 perday) and finally ending
the second quarter at about WS 164 ($53,200 per day). The average rate from WAF
to USAC in the second quarter of 2006 was about WS 138 ($40,600 per day),
compared to about WS 132 ($34,800 per day) in the second quarter of 2005.
Bunkers continued the upward trend seen in the first quarter with Fujairah's
highest bunker quote for the quarter early May at $359/mt, and thereafter slowly
decreasing to $325/mt at the end of the quarter with an average of $335/mt.
The International Energy Agency (IEA) reported in August an average OPEC Oil
production, including Iraq, of 29.75 million barrels per day during the second
quarter of the year, a 0.12 million barrels per day or 0.4 percent decrease from
the first quarter. OPEC decided at its extraordinary meeting held in Caracas on
June 1 to maintain current production levels. The Conference's next ordinary
meeting is to take place in Vienna on September 11.
IEA estimates that world oil demand averaged 83.1 million barrels per day in the
second quarter, a 2.2 percent decrease from the first quarter of 2006. IEA
further predicts that the average demand for 2006 in total will be 84.8 million
barrels per day, or a 1.4 percent growth from 2005, hence showing a firm belief
in continued demand growth.
According to Fearnleys, the VLCC fleet totalled 473 vessels at the end of the
second quarter of 2006, an increase of 0.9 percent over the quarter. No VLCCs
were scrapped in the period whilst four were delivered. The total order book now
stands at 149 vessels at the end of the second quarter, up from 130 vessels
after the first quarter of 2006. For the remainder of 2006 there are seven
deliveries expected and for 2007 we count 32. The current orderbook represent
31.5 percent of the current VLCC fleet. A total of 23 VLCCs were ordered during
the quarter.
The Suezmax fleet totalled 335 vessels at the end of the quarter, up from 329
vessels after the first quarter of 2006, a 1.8 percent fleet growth over the
quarter. No Suezmaxes were scrapped during the quarter whilst six were
delivered. The total order book at the end of the quarter is 68, up by one from
the end of the first quarter. For the remainder of 2006 there are 10 deliveries
expected and 2007 counts 26. The current orderbook represent 20.2 percent of the
Suezmax fleet. Seven Suezmaxes were ordered during the period.
At the start of August it was possible to sell freight futures for the remainder
of 2006 at a level that equated to TCEs for VLCCs at approximately $94,000 per
day and $57,200 per day for Suezmaxes.
Strategy
Frontline currently has five VLCC and six Suezmax newbuilding orders, all
ordered at a favourable cost compared to current newbuilding prices. Frontline
is also in the process of discussing a further two + two Suezmax fixed priced
options. The ordering of the tonnage has been done as a combination of a wish to
renew the fleet and an opportunistic investment approach with great flexibility.
The ordering confirms Frontline's position as a leading operator of quality
Suezmax and VLCC tonnage.
In the third quarter the Company decided to sell its investment in Genmar. The
decision to sell the Genmar investment was taken based on a rational evaluation
where increasing the Genmar investment was measured up against alternative
investments. This should thereby not be seen as any reduced willingness to act
as a consolidator.
The use of single hull tonnage trading as tankers after 2010 is uncertain and
will depend on national acceptance as well as charterer's practice. In order to
extend the trading life of such assets Frontline will seek to find alternative
use for such vessels including conversion to FPSO, heavylift or other types of
conversion. This market is developing rapidly. Frontline is currently
progressing a plan to convert the Front Puffin to act as an FPSO for an oilfield
development in Australia. The Board has also taken a decision to convert one of
the Company's single hull Suezmaxes to a heavylift vessel. The conversion, which
will take place at COSCO shipyard, is expected to be completed in the first
quarter of 2007.
Even if the rate for single hull tonnage, particularly in the Suezmax market, is
showing increased underperformance compared with double hull tonnage due to
increased waiting time, it is clear that the return on invested capital is
comparable between the two classes of ships. By finding alternative use for the
single hull tonnage the Company hopes to increase this return even further and
also extend the return period.
Frontline has chartered most of their single hull VLCC out on time charter and
has recently chartered out six of its double hull VLCCs on time charter to Shell
under a flexible charter agreement. We will monitor the time charter and spot
markets and strive towards a satisfactory mix in order to maximize long term
earnings.
The value of the Company's remaining investment in Ship Finance has increased
during the last months. The Board feels however that the investment still has
significant upside and will keep the remaining investment for the time being.
Outlook
World economic conditions indicate a good momentum for economic growth with a
forecasted GDP growth of 3.5 percent in US and 10.0 percent in China for 2006
along with an optimistic forecast for 2007.
IEA projects oil consumption to rise by 1.4 percent in 2006 (2005: 1.3 percent),
and the fleet growth will be moderate, estimated to 3.8 percent in the VLCC
segment and 7.7 percent in the Suezmax segment (2005: VLCC segment 7.5 percent
and Suezmax segment 9.5 percent). IEA estimates year on year fourth quarter 2006
growth in oil consumption of 2.6 percent which compared to the slightly negative
figure (-0.1 percent) in the fourth quarter of 2005 makes us quite optimistic
for the last quarter rates.
The overall orderbook for tankers has now approached 31 percent, and gives some
reasons for concern. However, the fact that the orderbook is stretched over five
years and that 30 percent of the fleet is non double hull reduce this concern.
Frontline feels that the market underestimates the ongoing trend that single
hull tonnage, particularly in the Suezmax and Aframax market, is becoming less
efficient due to severe trading restrictions. This is in line with what happened
with the pre 1980 tonnage phase out some years ago. This trend is likely to lead
to a tighter fleet balance prior to the new rules becoming effective in 2010,
and consequently a lower effect in 2010.
It has been encouraging to see the strength in the market in July and August.
Whilst last year we experienced average TCE rates for VLCC, according to the
Clarkson index of $40,000 per day, the same index has, so far, this quarter
performed with an average of $80,000 per day.
Based on the above mentioned trend of a more gradual phaseout of the single hull
tonnage due to decreased efficiency, and as a result of a stronger than expected
world-wide economy, the Company is becoming increasingly optimistic about the
prospects for the tanker market in the period 2006-2010. The increased
confidence in the long term outlook for the market by the market has, during the
last weeks, been expressed through increased price levels for modern second hand
tonnage.
The Board expects strong results and a continued high dividend pay out ratio to
the shareholders in the second half of 2006. The new ordering of 11 newbuildings
at reasonable levels puts the Company in an excellent condition to meet a very
interesting period.
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.
August 22, 2006
The Board of Directors
Frontline Ltd.
Hamilton, Bermuda
Questions should be directed to:
Contact: Tor Olav Troim: Director, Frontline Ltd.
+44 7734 976 575
Oscar Spieler: Chief Executive Officer, Frontline Management AS
+47 23 11 40 79
Inger M. Klemp: Chief Financial Officer, Frontline Management AS
+47 23 11 40 76
FRONTLINE GROUP SECOND QUARTER REPORT (UNAUDITED)
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2005 2006 INCOME STATEMENT 2006 2005 2005
Apr-Jun Apr-Jun Jan-Jun Jan-Jun Jan-Dec
(in thousands of $) (audited)
--------------- ------------ ----------------------------------------------------------- --------------- ------------ -------------
331,834 344,887 Total operating revenues 826,704 791,919 1,513,833
17,020 9,769 Gain (loss) from sale of assets 21,856 45,548 76,081
72,387 90,736 Voyage expenses and commission 208,525 156,851 337,221
36,237 55,347 Ship operating expenses 97,829 76,970 148,702
1,358 6,217 Charterhire expenses 12,391 2,476 11,711
3,883 7,188 Administrative expenses 11,919 9,038 21,181
50,197 50,273 Depreciation 102,479 98,408 198,359
164,062 209,761 Total operating expenses 433,143 343,743 717,174
184,792 144,895 Operating income 415,417 493,724 872,740
10,270 12,382 Interest income 23,066 18,960 41,040
(50,851) (53,362) Interest expense (105,991) (111,888) (215,994)
1,287 7 Share of results from associated companies (658) 3,217 3,691
2,738 3,720 Other financial items 18,745 23,140 47,189
4,898 (423) Foreign currency exchange gain (loss) (739) 11,396 18,830
153,134 107,219 Income before taxes and minority interest 349,841 438,549 767,496
(26,305) (38,534) Minority Interest (67,112) (44,704) (169,459)
84 (123) Taxes (123) 84 17
(1,198) - Discontinued operations - 5,335 8,785
125,715 68,562 Net income 282,606 399,264 606,839
Basic Earnings Per Share Amounts ($)
$1.70 $0.92 EPS from continuing operations before cumulative effect $3.78 $5.26 $7.99
of change in accounting principle
$1.68 $0.92 EPS $3.78 $5.34 $8.11
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Income on timecharter basis ($ per day per ship)*
50,300 50,600 VLCC 61,900 63,500 57,400
34,100 30,600 Suezmax 40,100 44,900 40,300
36,400 30,100 Suezmax OBO 30,900 36,100 34,900
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* Basis = Calendar days minus off-hire. Figures after
deduction of broker commission
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2006 2005 2005
BALANCE SHEET Jun 30 Jun 30 Dec 31
(in thousands of $)
(audited)
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ASSETS
Short term
Cash and cash equivalents 113,940 142,008 100,533
Restricted cash 625,066 622,193 636,790
Other current assets 358,062 249,416 398,148
Long term
Newbuildings and vessel purchase options 138,325 28,396 15,927
Vessels and equipment, net 2,470,497 2,549,811 2,584,847
Vessels under capital lease, net 649,566 695,801 672,608
Investment in finance lease 78,429 101,469 96,057
Investment in associated companies 55,503 22,075 10,169
Deferred charges and other long-term assets 57,593 45,951 52,760
Total assets 4,546,981 4,457,120 4,567,839
LIABILITIES AND STOCKHOLDERS' EQUITY
Short term
Short term debt and current portion of long term debt 310,230 169,583 240,191
Current portion of obligations under capital lease 26,946 23,162 25,142
Other current liabilities 128,919 112,963 187,645
Long term
Long term debt 2,126,510 2,287,537 2,199,538
Obligations under capital lease 692,804 719,989 706,279
Other long term liabilities 19,430 23,944 23,128
Minority interest 497,450 436,073 470,750
Stockholders' equity 744,692 683,869 715,166
Total liabilities and stockholders' equity 4,546,981 4,457,120 4,567,839
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2005 2006 2006 2005 2005
Apr-Jun Apr-Jun STATEMENT OF CASHFLOWS Jan-Jun Jan-Jun Jan-Dec
(in thousands of $) (audited)
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OPERATING ACTIVITIES
125,715 68,562 Net income (loss) 282,606 399,264 606,839
Adjustments to reconcile net income to net cash
provided by operating activities
52,347 51,007 Depreciation and amortisation 104,001 113,109 215,836
(135) 702 Unrealised foreign currency exchange (gain) loss (733) (4,962) (2,222)
(20,496) (9,769) Gain or loss on sale of assets (21,856) (73,570) (109,657)
(1,286) (6) Results from associated companies 659 (3,217) (3,692)
8,086 (1,765) Adjustment of financial derivatives to market value (6,447) (2,528) (12,335)
24,785 29,163 Other, net 57,202 42,646 166,173
43,649 55,909 Change in operating assets and liabilities 58,282 168,025 118,832
232,665 193,803 Net cash provided by operating activities 473,714 638,767 979,774
INVESTING ACTIVITIES
(32,614) (21,054) Maturity (placement) of restricted cash 11,724 (29,585) (44,183)
(4,000) Acquisition of minority interest (7,212) (4,000) (33,083)
(269,510) (92,088) Additions to newbuildings, vessels and equipment (153,959) (488,425) (558,163)
(48) (45,968) Advances to associated companies, net (45,968) (2,679) (2,612)
2,647 - Dividends from associated companies 8,262 20,911
13,386 6,322 Receipt from investment in finance lease and loans 6,322 14,471 20,540
receivable
(49,929) - Purchase of other assets (71,067) (98,826) (15,286)
166,954 9,778 Proceeds from sale of assets 102,038 302,472 250,339
(33,771) - Loan advances to related parties - (33,771) -
- - 16,800
Proceeds from sale of newbuilding contracts
(158,122) (332,081) (344,737)
(206,885) (143,010) Net cash provided by (used in) investing activities
FINANCING ACTIVITIES
317,758 80,315 Proceeds from long-term debt, net of fees paid 115,770 1,420,613 1,653,098
(126,518) (54,487) Repayments of long-term debt (119,008) (1,095,077) (1,361,500)
(5,476) (6,199) Repayment of capital leases (11,670) (10,500) (22,230)
(263,515) (144,565) Dividends paid (287,277) (585,416) (909,574)
- Issue of shares, net - - -
(77,751) (124,936) Net cash used in financing activities (302,185) (270,380) (640,206)
(51,971) (74,143) Net increase (decrease) in cash and cash equivalents 13,407 36,306 (5,169)
193,979 188,083 Cash and cash equivalents at start of period 100,533 105,702 105,702
142,008 113,940 Cash and cash equivalents at end of period 113,940 142,008 100,533
--------------- ------------- ------------------------------------------------------ -------------- --------------- ---------------
Exhibit 1
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorised.
Frontline Ltd.
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(Registrant)
Date August 22, 2006 By /s/ Inger M. Klemp
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Inger M Klemp
Principal Financial Officer
SK 02089 0009 696966