Frontline PLC reports results for the second quarter ended June 30, 2024

Frontline plc (the “Company” or “Frontline”), today reported unaudited results for the six months ended June 30, 2024:

Highlights

•Profit of $187.6 million, or $0.84 per share for the second quarter of 2024.
•Adjusted profit of $138.2 million, or $0.62 per share for the second quarter of 2024.
•Declared a cash dividend of $0.62 per share for the second quarter of 2024.
•Reported revenues of $556.0 million for the second quarter of 2024.
•Achieved average daily spot time charter equivalent earnings (“TCEs”)1 for VLCCs, Suezmax tankers and LR2/Aframax tankers in the second quarter of $49,600, $45,600 and $53,100 per day, respectively.
•Entered into an agreement to sell its oldest Suezmax tanker built in 2010, for a net sales price of $48.5 million. After repayment of existing debt, the transaction is expected to generate net cash proceeds of approximately $36.5 million.
•Entered into a senior secured term loan facility in an amount of up to $606.7 million to refinance eight Suezmax tankers and eight LR2 tankers, which generated net cash proceeds of approximately $275.0 million.
•Repaid an aggregate of $395.0 million under both the shareholder loan with Hemen Holding Limited (“Hemen”), our largest shareholder, and the $275.0 million senior unsecured revolving credit facility with an affiliate of Hemen in the second and third quarters of 2024.
•Secured a commitment for a sale-and-leaseback agreement in an amount of up to $512.1 million to refinance 10 Suezmax tankers, which is subject to execution of final transaction documents to both parties’ satisfaction. The refinancing is expected to generate net cash proceeds of approximately $101.0 million in the fourth quarter of 2024, which is expected to be partly used to repay the remaining $75.0 million drawn under the $275.0 million senior unsecured revolving credit facility with an affiliate of Hemen.

Lars H. Barstad, Chief Executive Officer of Frontline Management AS, commented:

“The second quarter of 2024 was very much in line with first quarter. Markets carried on at the same pace with positive volatility in an increasingly complicated geo-political landscape. Frontline continued optimizing its position by divesting older assets, consolidating our financials and executing on our strategy of efficiently running one of the largest modern fleets in the tanker market to enhance shareholder returns. Seasonality has a big effect on tanker markets, and as most of the global population lives in the northern hemisphere, the summer is the soft period. Historically, refinery utilization increases from here, as the world begins to prepare for winter and volatility in the tanker markets resumes.”

Inger M. Klemp, Chief Financial Officer of Frontline Management AS, added:

“In the second and third quarters of 2024 we completed our strategy of freeing up capital by re-leveraging part of the existing fleet and selling older non-Eco vessels enabling us to repay an aggregate of $395.0 million, which was drawn under the Hemen shareholder loan and our $275.0 million senior unsecured revolving credit facility with an affiliate of Hemen to partly finance the acquisition of the 24 VLCCs from Euronav NV. In the third quarter, we further secured a commitment for a sale-and-leaseback agreement to refinance 10 Suezmax tankers. The refinancing is expected to generate net cash proceeds of approximately $101.0 million in the fourth quarter of 2024, which will enable us to repay the remaining $75.0 million drawn under our $275.0 million senior unsecured revolving credit facility with an affiliate of Hemen.”

We expect the spot TCEs for the full third quarter of 2024 to be lower than the spot TCE currently contracted, due to the impact of ballast days at the end of the third quarter of 2024. The number of ballast days at the end of the second quarter of 2024 was 1,043 days for VLCCs, 306 days for Suezmax tankers and 147 days for LR2/Aframax tankers.

Second Quarter 2024 Results

The Company reported profit of $187.6 million for the second quarter ended June 30, 2024, compared with profit of $180.8 million in the previous quarter. The adjusted profit2 was $138.2 million for the second quarter of 2024 compared with adjusted profit of $137.9 million in the previous quarter. The adjustments in the second quarter of 2024 consist of a $51.5 million gain on the sale of vessels, a $2.1 million gain on marketable securities, $0.4 million debt extinguishment gains, $1.0 million relating to dividends received, a $2.1 million share of losses of associated companies and a $3.4 million unrealized loss on derivatives. The adjusted profit in the second quarter of 2024 was comparable to the first quarter of 2024 as the decrease in our TCE earnings from $369.7 million in the previous quarter to $357.7 million in the current quarter as a result of the disposal of two VLCCs and two Suezmax tankers was offset by a decrease in ship operating expenses, administrative expenses, depreciation and finance expense, as well as an increase in interest income.

Tanker Market Update

Global oil consumption, as reported by the Energy Information Administration (“EIA”), averaged 102.8 million barrels per day (“mbpd”) in the second quarter of 2024, 1.0 mbpd higher than the previous quarter. Looking ahead, demand is projected to accelerate in the second half of the year, potentially reaching 104.9 mbpd in December 2024.

Oil supply remained stable in the second quarter of 2024, averaging 102.1 mbpd. The Organization of the Petroleum Exporting Countries’ (“OPEC”) supply cut strategy remains in effect, resulting in an average production decrease of 0.6 mbpd compared to the second quarter of 2023. We continue to observe the trend where countries outside of OPEC are increasing their production. Compared to the same quarter last year non-OPEC countries increased their production with 1.2 mbpd. Looking one year ahead, the EIA anticipates additional non-OPEC production growth of 1.5 mbpd, potentially reaching an output of 71.7 mbpd.

However, the crude oil markets are seeing concerning developments. According to industry sources and based on the tracking of oil movements, the volume of oil exported from sanctioned countries has increased in the recent years, now amounting to 18.0% of all waterborne crude and condensate, estimated to be around 41.0 mbpd. Russia makes up a large portion of this and as EU and G7 sanctions continue to tighten, the transportation of Russian oil and products appears to attract a growing number of non-compliant vessels often referred to as the ‘grey fleet’. With such a large part of the trade employing questionable actors, an approximately 6% of the global VLCC, Suezmax and Aframax tanker fleet is reported to be sanctioned by the U.S. Office of Foreign Asset Control (OFAC). The average age of the global tanker fleet continues to rise with 13.0% of the above-mentioned asset classes over 20 years of age. This generation of tonnage are not normally used for oil transportation by compliant charterers and owners. The International Maritime Organization (IMO) has stated a clear regulatory path to reduce the industry’s carbon footprint with 20 to 30% by 2030. In addition, the UN organization’s commitment to the safety and security of shipping has placed increasing scrutiny on vessel owners. We believe it will be challenging to meet these ambitious goals since the environmental credentials of a tanker built prior to 2004 will not change without significant and potentially prohibitive investment.

The overall tanker order book for the asset classes that Frontline owns is now 15.3% of the existing global fleet, with 54, 94, and 147 vessels on order for VLCCs, Suezmax tankers and LR2 tankers, respectively. According to industry sources, only one VLCC is expected for delivery in the remainder of 2024 and five are expected to be delivered in 2025, thus increasing optimism for this asset class in particular. The growth in the order books is predominantly for deliveries scheduled in 2026 and 2027 and is not expected to affect the overall outlook of the tanker market in the near term due to the general age profile of the existing fleet.

The Fleet

As of June 30, 2024, the Company’s fleet consisted of 82 vessels owned by the Company (41 VLCCs, 23 Suezmax tankers, 18 LR2/Aframax tankers), with an aggregate capacity of approximately 17.9 million DWT. As of June 30, 2024, 99% of the Company’s fleet were Eco vessels and 56% were scrubber-fitted vessels with a total average age of 6.2 years, making it one of the youngest and most energy-efficient fleets in the industry.

In January 2024, the Company announced that it has entered into an agreement to sell its five oldest VLCCs, built in 2009 and 2010, for an aggregate net sale price of $290.0 million. Three of the vessels were delivered to the new owner during the first quarter of 2024, and the two remaining vessels were delivered in the second quarter of 2024 (one of which was classified as held for sale as of March 31, 2024). After repayment of existing debt on the five vessels, the transaction generated net cash proceeds of approximately $208.0 million. The Company recorded a gain of $42.7 million in the first quarter of 2024 in relation to the three vessels delivered in the period and recorded a gain of $25.9 million in the second quarter of 2024 in relation to the delivery of the remaining two vessels.

In January 2024, the Company entered into an agreement to sell one of its oldest Suezmax tankers, built in 2010, for a net sale price of $45.0 million. The vessel was delivered to the new owner during the second quarter of 2024. After repayment of existing debt on the vessel, the transaction generated net cash proceeds of approximately
$32.0 million, and the Company recorded a gain of $11.8 million in the second quarter of 2024.

In March 2024, the Company entered into an agreement to sell another one of its oldest Suezmax tankers, built in 2010, for a net sale price of $46.9 million. The vessel was delivered to the new owner during the second quarter of 2024. After repayment of existing debt on the vessel, the transaction generated net cash proceeds of approximately
$34.0 million, and the Company recorded a gain of $13.8 million in the second quarter of 2024.

In June 2024, the Company entered into an agreement to sell its oldest Suezmax tanker, built in 2010, for a net sale price of $48.5 million. The vessel is expected to be delivered to the new owner during the fourth quarter of 2024. After repayment of existing debt on the vessel, the transaction is expected to generate net cash proceeds of approximately $36.5 million, and the Company expects to record a gain of approximately $18.0 million in the fourth quarter of 2024.
In March 2024, the Company entered into a fixed rate time charter-out contract for one VLCC to a third party on a three-year time charter at a daily base rate of $51,500. The charter commenced in the third quarter of 2024.

In April 2024, the Company entered into a time charter-out contract for one Suezmax tanker to a third party on a three-year time charter at a daily base rate of $32,950 plus 50% profit share.

Corporate Update

In June 2024, the Company attended an introductory hearing before the Enterprise Court in Antwerp, Belgium, in response to a summons received from certain funds managed by FourWorld Capital Management LLC (“FourWorld”) in connection with their claims pertaining to the integrated solution for the strategic and structural deadlock within

The Board of Directors declared a dividend of $0.62 per share for the second quarter of 2024. The record date for the dividend will be September 13, 2024, the ex-dividend date is expected to be September 13, 2024, for shares listed on the New York Stock Exchange and September 12, 2024, for shares listed on the Oslo Stock Exchange, and the dividend is scheduled to be paid on or about September 30, 2024.

The Company had 222,622,889 ordinary shares outstanding as of June 30, 2024. The weighted average number of shares outstanding for the purpose of calculating basic and diluted earnings per share for the second quarter of 2024 was 222,622,889.

Financing Update

In November 2023, the Company entered into a senior secured term loan facility in an amount of up to $1,410.0 million with a group of our relationship banks to partly finance the acquisition of 24 VLCCs from Euronav (the “Acquisition”). The facility has a tenor of five years, carries an interest rate of Secured Overnight Financing Rate (“SOFR”) plus a margin in line with the Company’s existing loan facilities and has an amortization profile of 20 years commencing on the delivery date from the yard. In December 2023, the Company drew down $891.3 million under the facility to partly finance the Acquisition. Up to $518.7 million remained available and undrawn under the facility as of December 31, 2023, all of which was drawn down to partly finance the remaining 13 vessels delivered as a result of the Acquisition in the first quarter of 2024.

In November 2023, the Company entered into a subordinated unsecured shareholder loan in an amount of up to $539.9 million with Hemen to partly finance the Acquisition (the “Hemen shareholder loan”). The Hemen shareholder loan has a tenor of five years and carries an interest rate of SOFR plus a margin equal to the $1,410.0 million facility, in line with the Company’s existing loan facilities. In December 2023, the Company drew down $235.0 million under the Hemen shareholder loan to partly finance the Acquisition. Up to $304.9 million remained available to be drawn as of December 31, 2023. In January 2024, the Company drew down $60.0 million to partly finance the remaining 13 vessels delivered as a result of the Acquisition in the first quarter of 2024. In June 2024, the Company repaid $147.5 million under the Hemen shareholder loan. In August 2024, the Company repaid the Hemen shareholder loan in full.

In December 2023, the Company drew down $99.7 million under its $275.0 million senior unsecured revolving credit facility with an affiliate of Hemen to partly finance the Acquisition. In April 2024, the Company repaid $100.0 million under the facility. Up to $200.0 million remains available to be drawn following the repayment.

In May 2024, the Company entered into a senior secured term loan facility in an amount of up to $606.7 million with China Exim Bank and DNB, insured by China Export and Credit Insurance Corporation, to refinance eight Suezmax tankers and eight LR2 tankers. The facility has a tenor of approximately nine years, carries an interest rate of SOFR plus a margin in line with the Company’s existing loan facilities and has an amortization profile of approximately 19.7 years commencing on the delivery date from the yard. In June 2024, the Company drew down $306.5 million under the facility. Up to $300.2 million remained available and undrawn as of June 30, 2024, all of which was drawn down in August 2024. The refinancing generated net cash proceeds of approximately $275.0 million, of which $135.3 million was generated in the second quarter of 2024.

In July 2024, the Company secured a commitment from CMB Financial Leasing Co., Ltd (“CMB”) for a sale-and- leaseback agreement in an amount of up to $512.1 million to refinance a sale-and-leaseback agreement for 10 Suezmax tankers, which is subject to execution of final transaction documents to both parties’ satisfaction. The lease financing has a tenor of 10 years, carries an interest rate of SOFR plus a margin of 180 basis points and has an amortization profile of 20.6 years commencing on the delivery date from the yard and includes purchase options for Frontline throughout the period. The refinancing is expected to generate net cash proceeds of approximately $101.0 million in the fourth quarter, which is expected to be partly used to repay the remaining $75.0 million drawn under the $275.0 million senior unsecured revolving credit facility with an affiliate of Hemen.

Full Report

Source: Frontline