Jens Martin Jensen - Chief Executive Officer of Frontline Management As Inger M. Klemp - Chief Financial Officer and Chief Financial Officer of Frontline Management AS

Jonathan B. Chappell - Evercore Partners Inc., Research Division Gregory Lewis - Crédit Suisse AG, Research Division Erik Nikolai Stavseth - Arctic Securities ASA, Research Division Randy Laufman - Odeon Capital Group LLC, Research Division Fotis Giannakoulis - Morgan Stanley, Research Division Eirik Haavaldsen - Pareto Securities AS, Research Division

Good day, and welcome to the Q4 2012 Frontline Ltd. Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jens Martin Jensen. Please go ahead.

Thank you. Good morning. Good afternoon. And welcome to our Q4 2012 presentation. We will follow our usual program for the presentation with Inger going through the Q4 highlights and main transactions, lay out the financial review of the quarter and an update of our small newbuilding program. After that, I will follow up with some market comments and what we saw in the fourth quarter and a bit on where the market is at present. So Inger, if you could start, please. Inger M. Klemp: Thank you. And good morning and good afternoon, ladies and gentlemen. As Jens said, I will guide you through the highlights and the financial review in the fourth quarter of 2012 and so far into the first quarter of 2013. Moving then Slide 4, Highlights and Transactions. Frontline has continued to terminate and re-deliver a number of older and non-core vessels in the fourth quarter, the long term charter parties for the OBO carriers, Front Climber and Front Driver, which were made in October and in November 2012, respectively. The charter parties for the 2 single hull VLCCs, Ticen Ocean and Titan Aries, were terminated in November 2012 and in January 2013, respectively, and a gain of $11.2 million was recognized in the fourth quarter and we expect to recognize a gain of approximately $7.5 million in the first quarter of 2013, respectively. In February 2013, Frontline agreed to terminate the long term charter party for the Suezmax tanker, Front Pride. In December 2012, Frontline agreed to an early termination of the time charter out contracts on the 2 OBO carriers, Front Viewer and Front Guider, and receive the compensation for loss of hire of $35 million gross. Frontline also agreed to terminate the long term charter parties for these 2 vessels and paid $23.5 million to Ship Finance as compensation for the early termination for these charters. In December 2012, Frontline redelivered the chartered-in VLCC Gulf Eyadah to its owner. Moving then to Slide 5, Financial Highlights. Frontline reports a net loss of $16.9 million, equivalent to loss per share of $0.21 in the fourth quarter of 2012. This compares with a net loss attributable to the company of $49 million and a loss per share of $0.63 in the preceding quarter. For the full year 2012, Frontline announces a net loss of $82.8 million, equivalent to loss per share of $1.06. Moving then to Slide 6, Income Statement. Net loss, excluding gains and losses and impairment loss in the fourth quarter of 2012 is about $23 million better than in the third quarter of 2012. And this increase can mainly be explained by the following items. First of all, income on time charter basis was about $14 million higher this quarter than in the third quarter, and that was mainly due to an increase in TCE per day in the fourth quarter. Contingent rental expense or cash lease increased about $2 million this quarter compared with the third quarter due to the increase in time charter equivalent rates per day in this quarter. Ship operating expenses decreased by $7.4 million compared with the preceding quarter due to a decrease in earning cost and also a decrease in drydocking cost of $4.8 million. Charter hire expenses decreased by $2.5 million compared with the preceding quarter, primarily as result of redelivery of vessels. Otherwise, minor changes to other item this quarter. Then moving to Slide 7, Income on time charter basis. Frontline double hull VLCC fleet earned $18,500 per day in the fourth quarter compared with $13,300 per day in the third quarter. The average for the whole VLCC fleet was about $19,300 per day in the fourth quarter compared with $12,300 per day in the third quarter. The Suezmax fleet earned $14,000 per day in the fourth quarter compared with $10,500 per day in the third quarter. And the OBOs earned $35,100 per day in this quarter compared with $33,700 per day in the previous quarter. The TCE numbers show that Frontline this quarter has outperformed our peers both in the VLCC segment and the Suezmax segment. Then moving to Slide 8, Ship operating expenses and Off-hire. We have average OpEx for the fleet of approximately $9,700 per day in the fourth quarter compared to approximately $11,800 per day in the previous quarter. The decrease is due to the increase in both earning cost and drydocking cost as we drydock only 1 VLCC vessel in the fourth quarter compared to 4 vessels in the third quarter as you can see from the graph on the upper right-hand side of this slide. As you can see, from the graph on the lower right-hand side of this slide, off-hire days placed 42 in the fourth quarter compared to 144 days in the third quarter. And we expect to drydock 3 VLCC vessels in the first quarter of 2013. Then moving to Slide 9, Balance Sheet. The total balance sheet end December 31, 2012, is approximately $38 million less than at the end of the third quarter of 2012. There are no extraordinary movement in this quarter. Moving then to Slide 10, Cash Cost Breakeven rates. The estimated average cash cost breakeven rates for 2013 are approximately $24,200 per day for VLCC and $18,800 per day for Suezmaxes. These rates are daily rate our vessels must earn to cover vessel's operating cost, estimated interest expenses, bareboat hire and corporate overhead costs. Moving then to Slide 11, Newbuilding Overview. As of December 31, 2012, Frontline's newbuilding program comprised 2 Suezmax tankers and the company was committed to make newbuilding continued installment of $87.9 million, with expected payment in 2013. Moving then to Slide 12 and 13, Frontline Fleet. The number of vessels currently in the Frontline fleet is 48 vessels, including vessels on commercial management and vessels and ITCL vessels and is compounded by 34 double hull VLCCs and 14 double hull Suezmaxes. We have contract coverage of 6% on average in 2013 and 3% on average in 2014. The average net TC rate for the total fleet is about $39,800 per day in 2013 and $40,400 per day in 2014. With this, I leave it over to Jens again.

Thank you, Inger. We are now at Slide 14. The spot market finally picked up in the middle of the fourth quarter, unfortunate, it did not last very long. Positive factors in the quarter was increased ton mile, mainly strong Atlantic basin movements going into China and India. And we finally saw some resistance from the shipowners. And otherwise, there was increased activity with the usual winter season finally starting. At this number, all the ships was sold to source and conversion projects but newbuilding delivery still resulted in a fleet growth in the quarter. Now, we are at Slide 15 and 16, VLCC fleet order book. According to Fernleys, 49 VLCCs were delivered in 2012 against our on-paper order book of 56 vessels, with the last number of deliveries in the already saturated fleet. 47 Suezmaxes were delivered last year against on-paper order book of 66 vessels, again, according to Fernleys. I think the most positive to be said about the present order book is that 2013 is the last year of the large order book and we are moving into a more moderate fleet growth. If you look a little bit about newbuilding prices and time charter rates on Slide 17, we estimate the newbuilding prices for good specification VLCCs to be in the region of $80 million to $85 million depending on the actual yard. Mass ton, confirmed orders in the Chinese shipyard is $85 million for domestic order. Good spec Suezmax newbuildings are priced in the $55 million range. Time charter rates, again, this is very much on paper. The 3-year VLCC time charter rate is around $25,000 per day, and we estimate the rates for 3 years on Suezmaxes to be in the region of $20,000 per day. I think it's fair to say that there are very few time charters out there at these levels. At Slide 18, Outlook a little bit about the market. Generally and quite amazing, it took us and other ship owners 6 months to push this market up and this has been completely destroyed in the beginning of 2013 and we are now at spot rate of about $5,000 a day for VLCCs, depending on the actual destination. This poor market is starting to take its toll and more ships are being mentioned as having technical difficulties and getting difficult to employ in the markets because of this. As mentioned earlier, this is the last year with a high amount of newbuilding deliveries, both in the VLCC and Suezmax segment. However, despite this, the growth in the fleet outpaces the ton mile situation and only increased revenue can turn this market around on a short term and immediate basis. For Frontline, we have continued our strategy of selling older and non-core vessels from the fleet and redelivering chartered in tonnage. We still have a few more older units we potentially would like to dispose of. We have continued to outperform our peers in the VLCC segment for the full year of 2012, which is positive, and we hope we can improve our performance in the Suezmax segment. I think we can all say, there will be very interesting times ahead for all the tanker owners. With that, we are ready to take your questions. Thank you.

[Operator Instructions] We can now take our first question, Jon Chappell from Evercore Partners. Jonathan B. Chappell - Evercore Partners Inc., Research Division: Jens, first question is on the Suezmax fleet. You had an interesting slide on Page 7 of your performance and you compared it to the Orion pool, and in the fourth quarter, you significantly outperformed the pool. Was there anything specific that cost that outperformance for the first time this quarter? Was that a function of the fleet specifically? Any timing issues? Any regions that you're operating in?

We exited the Orion Suezmax pool during the fourth quarter last year. And I guess you could say our timing of going out that pool was fortunate as the market -- the spot market pace picked up and of course, the different positioning of the vessels. So I think it will be unfair to our ex-pool partner to say that we have completely outperformed them even though the figures show that, but it's probably more fair to look on longer-term basis going ahead. But as I mentioned, I hope our performance on the Suezmaxes can improve and we can keep up the earnings. Jonathan B. Chappell - Evercore Partners Inc., Research Division: Okay. And you mentioned continuing to sell non-core assets and redelivering chartered-in. How many chartered-in ships you have remaining, non-asset hull ships?

We have 1 VLCC, which we can redeliver in April, the double hull DHT Eagle and then the older called non-core ships, which we need to redeliver. We have one OBO, which Inger has already mentioned, we have sold and that will be terminated end of March and then potentially, some of the older Suezmaxes, we will look at during the year. Jonathan B. Chappell - Evercore Partners Inc., Research Division: Okay. So just the DHT Eagle chartered on the VLCC side. In the end of your -- at the press release, you mentioned if the market doesn't improve by 2015 and without any equity, the convertible bond may be at risk and you'd have to do another restructuring. I know 2015 is a long way away, but what other kind of restructuring could you do outside of what you've already done? Inger M. Klemp: Sorry, what kind of restructuring -- what was the question? Jonathan B. Chappell - Evercore Partners Inc., Research Division: Yes, what kind of options remain for Frontline if you needed to restructure if the market doesn't recover? I mean, you've already kind of restructured all your chartered agreements, you're selling the older ships, what's left to do? Inger M. Klemp: Well, I guess we would have to restructure again. You can always do it twice. Jonathan B. Chappell - Evercore Partners Inc., Research Division: Okay. But it kind of just leads to my last question then which is, what is Frontline Ltd. want to be? I mean Frontline 2012 is the growth company now. Outside of the 2 Suezmax newbuilds, there's no ship more modern than 9 years old. Are you just hoping for a recovery and then recovery is going to help the company survive or how do you view this company developing over the next couple of years if the market remains weak?

I think, like all tanker owners and non-tankers, what we have been through in the last 3 or 4 years is of course, a massive order book, which has been delivered into the market. Now we are finally starting to see the end of the tunnel in there and we're seeing a small number of ships being delivered. At the same time, we believe and hope that some of the older ships will likely disappear from the market. And it depends on the world economy. Maybe there will be an uptick in demand. So I think it's a question of trying to reduce the loss a little bit and hope for an upswing in the spot market and then keep the company going. You referred to the other company, which of course, has a different strategy in newbuildings and then in modern charters, but I think we would still like to consider ourselves, we're the big fleet on the water and potentially can be able to consolidate the market, which we clearly need.

We can now take our next question, Gregory Lewis from Credit Suisse. Gregory Lewis - Crédit Suisse AG, Research Division: I guess just following off with Jonathan's question on when we look at those newbuildings, and I guess they're scheduled for delivery at a certain point of this year. Is everything lined up so that we can take delivery of those 2 Suezmaxes in a smooth -- smoothly?

It will be it. Like we mentioned, we only have 2 Suezmaxes in our order book. And, yes, the ships are being constructed and the delivery will be sometime during second half of the year. I can't say so much more regarding that for the time being. Gregory Lewis - Crédit Suisse AG, Research Division: Okay. And then that is -- is there any more installment payments or is this all upon delivery?

The majority of what we have given is on delivery, yes. Gregory Lewis - Crédit Suisse AG, Research Division: Okay, perfect. And then just, Inger, when I was walking through the revenue, I mean, clearly, it was a nice boost up. I mean, is that primarily related to -- I mean rates were up a little sequentially but when I think about it, it mean it was pretty much just the receiving of that $35 million compensation payment that boosted it up. I'm sorry, if you mentioned it in your prepared remarks, it may be just was going a little bit fast. Inger M. Klemp: Yes. No, no, that's true. As you're saying, we have recorded the $35 million growth from termination of these leases in operating revenues. So that will of course boost the revenues this quarter. However, we also have of course the costs related to termination of the vessels, with the charters then, either in the form of a loss on the termination of charter or in the form of an impairment loss on expected termination of charter. So the gain, if you can call it that, on this transactions is $4.3 million as we have outlined in the press release.

Okay. And you could see, which we mentioned earlier, of course, you can see these revenues for each segment, both of VLCC and Suezmaxes, of course, they've quite improved compared to the third quarter.

[Operator Instructions] We can now take our next question, Erik Stavseth from Arctic Securities. Erik Nikolai Stavseth - Arctic Securities ASA, Research Division: My question regards to the new -- Suezmax newbuilds. You said you paid in $27 million on your balance sheet and you have remaining CapEx of $87.9 million. That makes a total of $115 million but the original price, to my recollection, was $62.5 million per vessel. Have you been given a discount on the vessels?

We have restructured our position with the shipyard a little bit, so that seems right. Erik Nikolai Stavseth - Arctic Securities ASA, Research Division: Okay. Secondly, I'm just noting that over the past -- or in January, really, there's been quite an uptick in Chinese VLCC orders and both in '11 and '12, there were these worries about the Chinese coming in and ordering anywhere between 50 and 100 VLCCs. And that has happened. But it seems to be that they want to take more crude on Chinese keel, is that something you're seeing in the market that more of Chinese volumes are going on Chinese vessels?

Oh, yes, for sure. I think 5, 6 years ago, the declared goal was 50% of all crude oil going into China should be carried on their own keel, and they're working towards that. VLCCs were ordered last year, it's not close to the 50 to 100 that was talked around, but I guess, we have around 20 to 25 ships which has been ordered now. I see it both as a desire to build up the fleet on Chinese steel but as also a tool to assist some of the shipyards, which has not been able to attract orders last year. So I think it's a combination of aid to the yards and expanding their domestic fleet. So I don't know how many more ships will be there but I am sure we will see a few more.

We can now take our next question, Randy Laufman from Odeon Group Capital. Randy Laufman - Odeon Capital Group LLC, Research Division: A quick question regarding the termination of those OBOs. I know you reflected the revenue in the quarter. Was all the cash flow related to those compensation payments? And then the termination with Ship Finance, was that all reflected in the fourth quarter as well? Or is there going to be a cash flow impact in the first quarter? Inger M. Klemp: No, everything is reflected in the fourth quarter. Randy Laufman - Odeon Capital Group LLC, Research Division: Okay. Can you give us more details as far as the timing of the new deliveries and the CapEx that you expect this time?

As mentioned on the newbuilding OU, the remaining installment to be paid is around $88 million and we expect the ships would be delivered during second half of this year. I can't say more precise regarding the delivery yet but that's the facts as of today. Randy Laufman - Odeon Capital Group LLC, Research Division: Okay, great. And then finally, just related to the OpEx -- fleet OpEx per day, can you provide some guidance as far as where you expect -- on an OpEx per day basis where you expect 2013, where your target is?

Well, of course, our fleet is getting older but at the same time, we managed to sell some of the older ships and especially OBOs, which has traditional always been higher operating costs. So we hope we can maintain at least the overweight in cost in 2013, which we have in 2012. In 2012, we had quite a lot of dry dockings, expense in dry docking. So I hope we can maintain that, hopefully, improve the operating cost a little bit this year.

We can now take our next question, Fotis Giannakoulis from Morgan Stanley. Fotis Giannakoulis - Morgan Stanley, Research Division: I want to ask you how was the market in the first quarter, the last couple of months? And what drove time charter rates and fixtures from the Middle East so much lower? And also, if you can give us your view about the next 3 months. Motiva is back and there are some hopes that there are going to be some more flows from Middle East to the U.S. Have you seen these fixtures taking place right now?

With that -- with your first question regarding what suddenly drove the market. And as I mentioned, it took us 6 months, us and other ship owners, to build up this market, which finally happened in the middle of November. And we had of course hoped that it would last well into the first quarter. Unfortunately, some shipowners, they have no clue on how to run their business and they simply just dropped the rates. We believe the market is more tight. Of course, it's quite strange to talk about a tight market when we are having VLCC earnings about $5,000 a day but with a bit of more knowledge and discipline, we should have -- the market should have been better by now. I agree with you. There is some hope for more long haul transportation, especially as Motiva finally is up and running again, which of course, will give much needed AG West movements than we have seen. Of course, both China and India have taken much more crude from mainly West Africa. That's of course has hurt the Suezmaxes but all the long-haul Suezmax rate has developed. So there is some positive signs but unfortunately, struggling with the oversupply of ships and that's where we, of course, needs to be reduced. So that should be some more, let's say, stamina from the shipowners. Fotis Giannakoulis - Morgan Stanley, Research Division: Have you seen any of these fixtures from the Middle East going towards the U.S. Gulf at this point?

Yes, we have seen it. That's quite a lot. We're quite amazed that some owners, they would actually do it minus $5,000, $6,000 a day. But I guess everybody has their own motives. Fotis Giannakoulis - Morgan Stanley, Research Division: And how is this explained? Do you think that many of the companies, they are in Chapter 11 right now, they are underbidding the market and do you believe that companies, they have financial difficulties right now, they will continue to put pressure to time charter rates?

No. I guess each company has their own policy and I guess some owners think that it's better to make $5,000 a day instead of holding out and trading at better market platform but I will not say it's because of the owners who are in restructuring or Chapter 11, but there seems to be some owners who are quite happy to go for very low returns and then I guess we all have our own strategies.

We can now take our next question, Eirik Haavaldsen from Pareto. Eirik Haavaldsen - Pareto Securities AS, Research Division: I just have one, if you can elaborate a bit on your report on spot rates. You do report numbers significantly higher than some of your competitors. Is there anything we're not seeing there?

No. I think we always try to -- we are not afraid of taking commercial waiting time. We have seen when the market is going up or we believe the market is going up, we wait and then we wait for the rates to increase and then we go ahead. So I guess you could say that our market view was different or better than somebody else. Of course, what is also a big factor, even though I believe the most shipowners are doing it, this morning, at the slowest beat, especially on the balance and we of course can do that extensively, but still different, that some ship owners seem to proceed at higher speeds than we do. But I think discipline, slow steaming and maybe a different market view helped us a bit during last year. Eirik Haavaldsen - Pareto Securities AS, Research Division: Has that been sort of helping you going into Q1 as well or can you...

Well, I was about to say, it did from the beginning, but the market has certainly changed. So I guess, it depends a little -- we will see when the quarter ends and how we are faring compared to our competitors. I guess, if you had ships take longer voyages in the end of last year, you could potentially come out with a better result. But it's difficult to judge quarter-to-quarter, but I would say on the VLCCs, we did fairly well last year in relative terms.

We have no further questions at this time.

Well, I would like to say thank you for everybody for dialing in. And I'd like to thank everybody in Frontline for their work and efforts during 2012, which was a difficult year. I think we can all hope for better times ahead. Thank you.

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