Interim report July – September 2001



Frontline reports earnings before interest, tax, depreciation, and amortisation including earnings from associated companies (EBITDA) of $107.4 million and net income of $39.3 million for the third quarter of 2001. These results include a gain on sale of assets of $18.8 million arising from the sale of the Suezmax tanker Front Archer in July 2001. Basic earnings per share for the quarter were $0.51 compared to $1.23 in the same period in 2000 and cashflow per share for the quarter was $0.92 (2000 – $1.51). The results for the third quarter of 2001 compare with EBITDA and net income of $141.3 million and $97.0 million respectively in the third quarter of 2000, a period when rates in the tanker market were at significantly higher levels.

The average daily time charter equivalents (“TCEs”) earned by VLCCs, Suezmax tankers, and Suezmax OBO carriers were $30,800, $23,100 and $23,000, respectively, down from $51,400, $36,500 and $33,400, respectively in the immediately preceding quarter. Operating costs for the third quarter of 2001 include a charge of approximately $1.3 million for supplementary calls for P&I insurance and a charge of approximately $2.1 million in connection with the drydocking of four vessels in the quarter. With the exception of these items, total operating costs have been maintained across the fleet at budgeted levels. In the third quarter of 2001, the Company has changed its accounting policy for drydockings. Prior to the third quarter of 2001, provisions for future drydockings have been accrued and charged to expense on a pro-rata basis over the period to the next scheduled drydockings. Effective January 1, 2001 the Company will recognise the cost of a drydocking at the time the drydocking takes place, that is it will apply the “expense as incurred” method. The expense as incurred method is considered by management to be a more reliable method of recognising drydocking costs as it eliminates the uncertainty associated with estimating the cost and timing of future drydockings. The cumulative effect of this change in accounting principle is shown separately in the consolidated statements of operations for the nine months ended September 30, 2001 and resulted in a credit to income of $32.3 million in the first quarter of 2001. The cumulative effect of this change as of January 1, 2001 on the Company’s consolidated balance sheet was to reduce total liabilities by $32.3 million. The Company’s income statements and balance sheets have also been restated for the first and second quarters of 2001 as a consequence of this change in accounting policy.

Net interest expense for the quarter was $19.7 million (2000 – $22.0 million). This compares with $19.4 million the second quarter of 2001. Other financial items for the quarter were $7.5 million of which $7.2 million is attributable to the market value adjustment on interest rate swaps. The strengthening of the Yen against the US Dollar in the third quarter of 2001 has resulted in the Company recording an unrealised foreign currency exchange loss of $9.6 million primarily relating to the revaluation of Yen debt in certain Golden Ocean subsidiaries. For the 2001 year to date there is an unrealised foreign currency gain of $9.3 million. There is a similar foreign currency impact on the share of results from associated companies due to the revaluation of Yen debt within certain of these companies.

On 12 November 2001 the Board has declared a dividend of $0.10 per share for third quarter. The record date for the dividend is 22 November 2001, and ex dividend date is 20 November 2001. The dividend is to be paid on or about 5 December 2001.

For the first nine months of 2001, the Company had EBITDA of $459.3 million (2000 – $260.1 million) and earned net income of $339.0 million (2000 – $132.7 million). This net income in 2001 includes $32.3 million relating to the cumulative effect of the change in the accounting policy for drydockings as discussed above.

Net interest expense for the nine month period was $60.8 million (2000 – $64.3 million). This decrease reflects the benefit of lower interest rates on debt and increased interest income arising from higher average cash balances. Other financial items for the nine months ended September 30, 2001 were $11.6 million which is attributable to the market value adjustment on interest rate swaps. The foreign exchange gain for the nine month period was $9.3 million, reduced from $19.0 million at June 30, 2001 principally due to the strengthening of the yen against the US Dollar. Earnings per share for the 2001 year to date are $4.41 (2000 – $1.86) and cashflow per share was $5.57 (2000 – $2.74).


At the start of the third quarter of 2001, charter rates improved from the very low rates experienced towards the end of the second quarter. VLCC rates showed great volatility and varied between below $20,000 per day in August and $50,000 per day in the second half of September. Suezmax rates peaked in July and declined thereafter. After the end of the quarter the market has weakened considerably and both VLCCs and Suezmaxes are currently being fixed at low levels.

The rate decline is explained by a general slowdown in the world economy and a decrease in OPEC Middle East production as a consequence of several OPEC quota reductions. The balance between supply and demand is not as bad though as current rate levels seem to indicate but general pessimism has contributed to depressing the market.

As a consequence of market development scrapping and conversion of older tonnage has accelerated and so far this year 28 VLCCs/ULCCs and 18 Suezmaxes have been scrapped or converted compared to 23 and 14 respectively delivered. Newbuilding contracting has more or less come to a halt. The order book, though, still stands at 89 VLCCs and 67 Suezmaxes for delivery from now until first half of 2004.


Frontline’s wholly-owned subsidiary, Golden Ocean, agreed in May 2001 to a settlement with certain parties in order to acquire five VLCCs over which Golden Ocean had purchase options. Three of these vessels were delivered to the Company in the second quarter of 2001 and the fourth was delivered in mid July. One of these VLCCs is on time charter to Arcadia until mid 2002 at a TCE of approximately $40,000 per day and one is trading under a market related bareboat charter to Shell. The other two vessels have been employed in the Tankers International Pool.

In the third quarter of 2001, the Company took delivery of three new double-hulled VLCCs from Bergesen D.Y. ASA in a joint venture together with Overseas Shipholding Group, Inc. and Euronav Luxembourg S.A. These vessels are employed in the Tankers International Pool. The joint venture with OSG and Euronav has also acquired two newbuilding contracts for double-hulled VLCCs from Bergesen, with delivery scheduled for February and July 2002.

In August 2001, the Company took delivery of a newbuilding Suezmax, Front Melody and in early October took delivery of her sister ship, Front Symphony. These vessels acquired by the Company, together with the three vessels acquired through the joint venture with Euronav and OSG, have been financed by traditional bank financing.

In July 2001, the Company sold the Suezmax tanker, Front Archer and the 1974-built VLCC Mosocean that was purchased as a result of the acquisition of Mosvold Shipping Limited in the second quarter of 2001.

During the third quarter of 2001 the Company issued a total of 15,000 shares in connection with the exercise of employee share options and bought back and cancelled a total of 520,000 of its own shares. In September 2001, the Company announced that it has established a Stock Indexed Total Return Swap Programme (or Equity Swap Line) with The Bank of Nova Scotia Group (“Scotia”). The Programme secures that Scotia may acquire up to 3,500,000 Frontline shares over the next 12 months. Since the shares are owned by Scotia the shares will not be subject to immediate cancellation, which has been the case for regular buy backs carried out by the Company. At September 30, 2001, the Company has acquired a total amount of 3,927,145 of its shares and 301,400 shares had been acquired by Scotia within the current Board authorization to buy back up to 7,500,000 shares. At September 30, 2001, 76,407,566 shares were outstanding and the weighted average number of shares outstanding for the quarter was 76,489,577 (as at September 30, 2000, 78,537,524 and for the quarter then ended – 78,804,371).


The downturn in the global economy this year will be negative for oil consumption resulting in slow or marginal growth. In addition, Middle East OPEC’s market share may decline. This will negatively affect the tanker market. We expect that this will result in increased scrapping of old tonnage, which may balance or exceed expected newbuilding deliveries. Scrapping alone, however, will not be sufficient to create an improved rate environment but will create room for higher rates as demand picks up. Generally global oil stocks are tight so there is little risk of stock draw reducing tanker demand further. The recent weakening of the oil price should over time stimulate demand for oil relative to other energy sources. This is likely to make a positive contribution to the freight market. Part of this effect was experienced after the fall in oil price in 1997-98.

The Board expects that tanker rates will be lower than what we have been used to until oil demand growth starts to increase, but expects periods of good rates due to seasonal demand swings in the winter. The lower freight rates have resulted in decreasing second-hand values. The Board sees opportunities for acquisitions or corporate transaction in a changing market. It is, however, a concern for the Board that the Frontline share price currently is trading at 44 per cent of book value. This limits the opportunity for expansion but makes an extension of the current buyback program very interesting. The current cash position of US$ 117 million gives the company good financial flexibility. The Board is currently considering actions, which will boost the cash position further. Frontline has today a profit and loss breakeven rate of US$ 21,400 for VLCCs and US$ 15,700 for Suezmaxes. Based on the current age composition of the fleet the Board is confident that the rates in the coming periods will exceed these levels even in a negative economic development scenario.


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 charterhire 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, drydocking 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.

November 12, 2001

The Board of Directors

Frontline Ltd.

Hamilton, Bermuda

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3rd Quarter 2001