Robert Hvide MaCleod - Chief Executive Officer Inger Klemp - Chief Financial Officer

Jon Chappell - Evercore ISI Matthias Detjen - Morgan Stanley Donald Bogden - Wells Fargo George Froley - Pacific Income Advisers Andreas Attalides - CapeView Nicholas Espiritu - Tendercapital

Good day. And welcome to the Q1 2015 Frontline Limited Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Robert Hvide MaCleod. Please go ahead, sir.

Thank you very much. Good afternoon, and good morning, ladies and gentlemen. Welcome to Frontline's presentation for the first quarter of 2015. This presentation will proceed as follows: Inger will start with the quarterly highlights, the main transactions and the financial review of the quarter. I will then follow-up with earnings and market factors, newbuilding prices, fleet development and time charter rates, Frontline's present situation, and finally, the market outlook. Inger, please go ahead.

Thanks, Robert, and good morning, and good afternoon, ladies and gentlemen. Then I would like you to move to slide four, Highlights and Transactions. In January 2015, Frontline took delivery of Front Idun and the ATM program was increased to having aggregate sales proceeds of up to $150 million from up to $100 million in January as well. Frontline issued 12.9 million new shares under its ATM program in the first quarter. In April 2015, we issued further 12.9 million new shares under the ATM program and in May 2015, the company issued further 5.9 new shares under the ATM program and existing ATM program is then fully utilized. In February 2015, Frontline bought $33.3 million of its convertible bond at a purchase price of 99% and in April 2015, the remaining outstanding balance on the convertible bond of $93.4 million was repaid in full upon maturity. Then today, Frontline announced that it has entered into a heads of agreement to amend the terms of the long-term charter agreements with Ship Finance. This is for the remainder of the charter period with effect from July 1, 2015. Then I would like you to move to slide five, summary of new charter structure with Ship Finance. The new agreement is a combination of, first that the long-term time charter rates are reduced to $20,000 per day for all VLCCs and $15,000 per day for all Suezmax tankers for the whole charter period. The operating expenses payable by Ship Finance is increased from current rate $6,500 per day to now $9,000 per day. Ship Finance will receive 50% of achieved rate above new time charter rate. The remaining pre-paid profit split will be terminated, which means that profit split will be paid to Ship Finance from July 1, 2015. The cash sweep of $6,500 per day will also be terminated from July 1st with accrued cash sweep from January to June will be paid to Ship Finance in July 2015. The parent guarantee from the -- for the charters from Frontline will be terminated and a minimum cash buffer of $2 million per vessel will be build up in the chartering counterparty, which is a subsidiary of Frontline. The estimated deduction in six charter payments to Ship Finance under the amendments of the charter agreement is approximately $283 million. In addition, the new agreement significantly strengthens Frontline balance sheet and reduce financial risk. Frontline will issue 55 million Frontline shares to Ship Finance concurrently with the completion of the new agreement, which represents approximately 28% of the shares and bonds in Frontline following the completion of the share issue. Then I would like you to move to slide six, Financial Highlights, and slide seven, Income Statement. Frontline reports net income of $31.1 million, equivalent to earnings per share of $0.25 in the first quarter. This compares with a net loss of $13.6 million and a loss per share of $0.12 for the preceding quarter, which is $44.1 million improvement from the fourth quarter. The net income attributable to Frontline in the first quarter includes a share of net income in Frontline 2012 of $5.7 million. Excluding this the net income from operation in the first quarter was $25.4 million, compared with the loss of $5.2 million in the fourth quarter. The increase in the sales operation of $30.7 this quarter is due to increase in time charter rate, which led an increase in result on time charter basis of $30.7 million. Then I would like you to move to slide eight, Income on time charter basis. Frontline spot VLCC fleet earned $52,200 per day this quarter, compared with $27,400 per day in the fourth quarter. The average for the whole VLCC fleet including time charter out was about $49,400 per day this quarter, compared with $27,900 per day in the previous quarter. The Suezmax fleet earned $35,000 per day this quarter, compared with $27,200 per day in the fourth quarter. And the average for the whole Suezmax fleet including time charter out was about $33,100 per day this quarter, compared with $26,000 per day in the fourth quarter. Then move to slide nine, Ship operating expenses and off-hire. The average OpEx for the fleet in the first quarter was approximately $8,500 per day, compared with approximately $8,600 per day in the fourth quarter. We have no drydockings this quarter same as in the fourth quarter as we can see from graph on the upper right-hand side of the slide. And as you can see from the graph on the lower right-hand side of the slide, off-hire days was 32 in the first quarter, compared with 24 days in the fourth quarter. We have four scheduled drydockings in the second quarter of 2015. Moving then to slide 10, Balance Sheet, the changes to the balance sheet end of March 31, 2015, compared with end of December 2014 are mainly as follows: The cash increased by $24 million. Broken up in $39 million of this relates to share issues, $30 million relates to drawdown of debt, $33 million was spent on bond buyback and $41 million relates to newbuilding installment payments regarding delivery of Front Idun. We have also paid $32.7 million in cash sweep for 2014 for ship finance in this quarter. And the remaining movements relate to increase in cash flow of operation. Restricted cash in ITCL decreased by $42 million, which relates to the settlement of the Golden State bond. In January, Front Idun was delivered and this explains the change in newbuilding. Vessels and equipment increased by $40 million, which relates to the delivery of the Front Idun, partly offset by depreciation in the quarter. Long-term debt decreased by $54 million as a consequence of settlement of Golden State ships in ITCL, bond buyback, decrease in capital lease obligations, partly offset by draw down of debt of delivery of Front Idun. Roughly the equity increased by $70 million in the quarter due to depreciation and the net income in the quarter. Otherwise there were small changes to other balance sheet items this quarter. Then I would like to turn over to slide 11, the cash cost breakeven rates. The estimated average cash cost breakeven rates for the second quarter of 2015 are approximately $31,300 per day for VLCC and $23,100 per day for the Suezmax. This include estimated cash sweep to ship finance of $6,500 per day. When the amendment to the long-term charter agreement with ship finance is effective, the estimated average cash cost breakeven rates for the second half of 2015 are approximately $24,800 for VLCC and $19,500 per day for Suezmaxes. These rates are the daily rates our vessels must earn to cover the budgeted operating costs and dry dock, the estimated interest expense, bareboat hire, installment on loans and corporate overhead costs. The breakeven rates do not -- they do exclude CapEx. With this, I leave the word to Robert again.

Thank you very much Inger. Let's look at slide 12, earnings and market factors in Q1. The quarter started off strongly in both the VLCC and the Suezmax markets. There were a few sharp corrections during the quarter but they were short-lived and rebounded quicker than seemed for many years. Volatility certainly came back into the market along with owner’s belief that the markets were entering recovery stage. These factors led to the quarter signing off with the best spot daily earnings Frontline has delivered since the first quarter of 2009. In January, we looked in three VLCCs through to the second quarter of 2016 at an average rate of $43,000 and another one through to summer this year at $55,000 per day. The quarter showed an average debt in crude supply over $95 million barrels per day for the second time in history. Floating storage did not play as an important part as we predicted. This can be reasoned with the increase in the oil price which straitened the contango curve. This along with the strong spot market encouraged trading the vessels as spot. Five VLCCs and six Suezmaxes were delivered during the quarter. We only saw one ship leave each fleet. Moving onto page 13, values and rates. The prices came off fractionally from the last quarter always depending on the specific yard and the final specification but we estimate a standard VLCC to be priced at $95 million, $96 million and $65 million, $66 million for Suezmax. As for the time charter markets, rates firmed up and a number of deals increased substantially at the start of the first quarter versus what we saw in 2014. This occurred in the back of the seaborne contango which found charters scrambling for tonnage intended for storage. As an example, during the summer of 2014 as Suezmax was priced just $20,000 a day for three years, today that market is around $30,000 for the same period. Frontline expects to be active in the time charter market going forward, both through time charters in and out depending on where we feel the current market is versus our future expectations. Moving onto page 14 please, the VLCC fleet. There are currently 642 vessels in the world fleet, of which around 200 are controlled by the oil companies whilst the balance is trade in spots. The vessels delivered in the quarter make little difference to the fleet development. Overall, the fleet is relatively balanced and our hope remains that further consolidation will take place. The order book is around 15% of the present fleet, up about 2% from our last quarterly presentation. Given the strength of the spot markets, we expect very little scrapping and a further increase in the order book will cause concern. Let’s move quickly to page 15, the Suezmax fleet. The fleet counts 455 ships. The order book is again slightly concerning at around 16% of the present fleet. Let’s move to Frontline on page 16. We currently market fleet of 17 Suezmaxes and 25 VLCCs. In April, we paid off our convertible bond loan in full. This was an important milestone for the company. Now with a new charter structure in place with Ship Finance, we think has just taken us through. I’m very, very pleased to say that we can shift our focus from restructuring to development and growth mode. So let’s go to the final slide, please. The market outlook. If we start off with looking at where we are today, the strength in Q1 has kept this momentum into Q2 and it remains strong in what seasonally is a weaker period in Q1. So looking a little further out and start with the risk factors going forward. As mentioned earlier, the order book is presently 15% and 16% of the VLCC and Suezmax fleet. The order book is a constant risk factor to the market. It has wounded on several occasions in the past. There has been a number of container orders placed lately, which has taken out some of this spare yard capacity, but the dry and offshore markets remain very sluggish. So, we believe there is ample spare yard capacity. With the recent strengths in the spot markets, many ships that were predicted to be scrapped will keep trading. Another factor that could soften the tank rate is vessels speeding up. From what we can see, this has occurred to a certain extent already in 2015 and there is further risk of speed increasing. Moving onto the bullish factors, all of which are factors that explain the current strengths in the market. The main factor is world oil supply. It is at its highest level ever. This has led to the tanker fleet, surpassing 85% utilization. Our estimate is that we are around 86%, 87% now. Atlantic Basin Barrels, West Africa and Latin America as examples, keep going to the East, which in turn keeps tonne miles high. The current volumes has caused delays in ports and terminals, which also takes out supply. One example is [Batra] [ph] where the current delay is two to four weeks. Our prediction is that we will have a strong tanker market in 2015 and that there is potential for this to keep going into 2016. With that, we are ready for your questions.

Thank you. [Operator Instructions] We will now take our first question from Jon Chappell at Evercore ISI. Please go ahead. Your line is open.

Thank you. Good afternoon. Robert, I just want to focus on the shift now from defense to offense and the growth initiatives. So specifically, you’ve done a lot of very proactive things like the transaction with Ship Finance, obviously paying off the convert really good now, remove that overhang. What liquidity do you have today, whether that’s from a debt capacity or cash capacity to actually start to pursue growth again?

I will let Inger go through the liquidity to give you an update on that.

I’m not sure what you are thinking about, Jonathan. But as you know, the cash situation as of the end of the first quarter, you can see it from the press release.

Do you have any more debt capacity or if you can -- if we just looked at the cash and took out the buffer for Ship Finance and assume that you can lever that 50%? I mean, I guess the question is would you be comfortable taking on more leverage at this point to add ships?

No, we don’t have any revolving loan facility or anything, which we can draw on is best within the industry. Obviously if there is an opportunity which we think is a very good opportunity for us to grow going forward, I am certain about that we will find financing for that.

And would you be willing to use shares considering by most estimates you’re still trading at a pretty hardy premium to NAV?

This needs to be considered when we have certain tax transaction that they would like to consider.

Okay.

So anything is possible.

As far as potential transactions, Robert your background from what I understand is somewhat in the product side, Frontline has historically been a permanently crude player and Frontline 2012 is getting bit in the product. If you just think about Frontline Limited with the focus remain on the crude side if you think you would venture into the product market.

No, going forward, the focus will be for the company to be on the crude side and now we’ve without into important steps in getting the company ready for the future. So now we will use some head to see what we can do with it.

Okay. Final thing, read in the Frontline 2012 release you’re looking at a listing in the U.S. 2015, things like the Fredriksen group in drybulk and other sectors as well have been very much behind the consolidation. Is the end game for Frontline Limited to end up with Frontline 2012 and create a bigger and more broad-based and more modern fleet?

Now that’s most of the time to do. That was what we said in the last quarter that we want to bring Frontline back into being a leading tanker company and there is many ways to do that and that’s something we will keep working on.

Okay. Thank you, Robert.

Thank you.

Thank you.

Thank you. We will now take our next question from Matthias Detjen at Morgan Stanley. Please go ahead. Your line is open.

Good morning. I have one question about the markets to start off. We started at about the West African cargoes and how there is quite a few unsold cargoes there. Could you maybe give us some color about that and if that might relates to the market further and if you’ve also seen that relate those cargoes stuff there?

It is very uncertain region in terms of flow head, but no, I can come up with, as said we have seen the flows have been relatively stable actually.

Okay. And then I guess one other question about the shareholding, what is the current value of your both gas and gold notion shares that you received and will receive from Frontline 2012?

You can think about Frontline Limited shareholding.

No, the shareholding and even received dividend share in the form of dividends from 2012?

We will receive from notion shares from Frontline 2012, that’s correct.

And can you give us the value of those shares?

Sorry, the value?

The value or how many you are going to receiving and the estimate there, do you have anything there?

That will be the percentage that we have according to our shareholding in Frontline 2012 and we have 13.4 million shares in Frontline 2012. So you have to divide that by 3.27 -- 3.21 was next, 3.21 yes and then you get to the number of shares.

Okay. That’s helpful. And just like the follow-up to that. What are you planning on doing with the shares? Do you plan to hold them or liquidate them, or what are you planning on doing them once you receive those shares?

We haven’t really decided on that yet. So let’s see what we do.

Okay. Well, thank you for that.

Thank you. We will now take our next question from [Paul Caile] [ph] [indiscernible]. Please go ahead. Your line is open. : Good morning. Thank you. Our three-part question. Could you help us with the remaining term on the new finance structure? And secondly, is there -- are there buyout provisions that are not remaining term? And finally, are old friend Independent Tankers if you could give us a status update on that? Thank you.

The remaining duration of the block period of these 17 vessels, you can average 7.7 years. And there is a buyout or purchase option of the derivatives in the structure at it is today. And what your second question was? : Independent tankers status update.

I can tell you that has been mainly more or less something happening in a way because we have sold and paid down everything in a way, so that this is something which is more or less no operation any longer. : Thank you.

Thank you. Our next question comes from Donald Bogden at Wells Fargo. Please go ahead. Your line is open.

Good morning. I just wanted to talk about I guess how you view your time charter versus spot market exposure moving forward? I mean, I saw you locked in three long-term charters and an additional charter earlier in Q1 but now that you sort of cover some of the overhang from the convertible bonds, would you transition back to full more traditional spot exposure?

Donald, as I said earlier, we took some cover in January and we will look at where the levels are. At the moment for some we see the levels as quite high. I would say it’s truly we’re pursuing -- setting out to one ship rather than taking one in. But then again if the market drops and our future prediction of the market is positive then we’d also consider taking ships in. So it very much depends on where the market heads.

I appreciate the color, guys. Thanks.

Thank you. Our next question comes from George Froley at Pacific Income Advisers. Please go ahead. Your line is open.

Good morning. It’s from California. Could you explain why it seems that Frontline 20 has bigger never tankers and we seem to have older smaller? And how did that some could be that all the good tankers ended up in this partnership?

Frontline 2012 was created almost for about 3.5 years ago and that was in connection with the restructuring of some plans, which took place late 2011. So what was the decision then or what the solution in a way was that we created a company which both some of the vessels and new buildings from Frontline Limited. And obviously, many of the vessels went up owned by Frontline Limited. It was the least vessels from Japan. So it wasn’t that many vessels that you could sell. And so those are the vessels that we could sell. And then that’s why in a way they ended up in sometime 2012.

If Frontline 2012 listed in the U.S. how would that help Limited?

Sorry. Can you repeat?

Yes. If Frontline 20 listed in the U.S. markets, how would that help Limited?

Not in any way in the way because these are two different separate companies.

And how much of Frontline 20 do you own, does limited own?

Approximately 5%.

Just 5%.

Yes.

Okay. Thank you.

Yes. You are welcome.

Thank you. [Operator Instructions] We will now take our next question from Andreas Attalides at CapeView. Please go ahead. Your line is open.

Hi. I had a quick question regarding the agreement with SFL. Correct me if I’m wrong but from today until July 1st whereby this new agreement kicks in, your company will not share any profit with SFL so effectively whatever upside that are in the market will accrue to you because then utilized of bond ship, $50 million asset is not yet fully utilized? That’s my first question.

Yeah. Your question that we have prepared profit list, so until the 1st of July, its not very likely that ship finance will receive any profit share and that is correct.

And then will you get a refund for the outstanding balance on the prepaid or will you just forego it as part of this deal?

The rest or remaining will be forgiven as part of the transaction as explained in the press release.

Okay.

Like also ship finance also gives the cash rate of the second half of 2015.

Understood. And for non-SFL assets, correct me, if I’m wrong but they expire in a year. So you basically owned the cash flow of those assets in the value that are accrued to you for one year. And then is there any purchase options on those four assets?

Are you referring -- are you referring to the vessels from the German KGs…

Exactly. So Tina, Commodore, Melody, and Symphony, those four assets.

Yes. They will expire at the end of 2015, the charters. And we don’t have any purchase options but they have a possibility to put the rest of them on ourselves.

Okay. Understood.

Okay.

Thank you. [Operator Instruction] We do have a question, pardon me, and it is from [Nicholas Espiritu] [ph] at Tendercapital. Please go ahead. Your line is open.

Hi. Good morning. I would like to see if your capital increase with ship finance is the first tranche or it’s old, and if the ship finance can buy all from client after debt agreement? Thank you.

Do you ask whether they are going to buy the whole Frontline capital you are asking?

Yes. Inger Klemp -: I guess we are not ready for that question.

I mean that now you have a ship agreement with Ship Finance and then you have a new capital increase of $27 million I think and have about 27% of property of shares. Inger Klemp -: Of the company.

And I would like, if we trash that can available, I know that one and if Ship Finance can buy all Frontline in the future?

I wouldn’t imagine that could be here likely. But I can’t see why they should. What you think, Robert?

Just keep guessing.

Yeah.

I don’t understand. About your capital increase, why is the ratio of capital increase?

Why we have done the capital increase?

Yeah. Why do you have a capital increase with ship finance? Inger Klemp -: Because we’re doing the agreement with them. We are doing amendment of the charter agreement. And as compensation, we’re issuing shares, 55 million shares.

Yeah. And then, they are the first shareholder or not in the future?

The first in the future, I’m not sure I understand your question.

About your new shareholder, you seeing that they can increase shares in the future or not, can become the new shareholder in the future or not, if it’s only a financial shareholder?

As I’ve just said, I don’t think that is likely. But I guess that’s only speculation. So, I don’t have any further answer to that.

Okay. Thank you.

Thank you. [Operator Instructions] We do not appear to have any more questions at this time. I would pass it back to the speakers for any closing remarks.

Thank you. Thank you all for dialing into this call. And I would like to take this opportunity to thank everyone in Frontline for their excellent efforts in turning the shift around. Thank you very much.

This will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.