Robert Hvide Macleod - CEO, Frontline Management AS Inger M. Klemp - CFO, Frontline Management AS

Donald McLee - Wells Fargo & Company John Reardon - Merriman Capital Erik Stavseth - Arctic Securities

Good day and welcome to the Frontline Limited Q3 2014 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.

Good morning and good afternoon ladies and gentlemen. Welcome to our Q3 presentation. The presentation will proceed as follows; Inger will start presenting the Q3 highlights and the main transactions and then the financial review of the quarter. After that I will follow-up with earnings and market factors, the VLCC and Suezmax fleets, new building prices, and time charter rates, Frontline's present situation, and then the markets outlook. We will then open for questions. Inger, if you could please go ahead and start. Inger M. Klemp: Thanks Robert and good morning and good afternoon ladies and gentlemen. And I would like you to move to slide 4, highlights and transactions. Frontline issued 1.1 million new shares under the ATM program in the third quarter. Frontline agreed with Ship Finance in July to terminate the long-term charter parties for the 1999 built VLCCs Front Opalia, Front Comanche and Front Commerce and those charter parties were terminated on November 4th, November 12th, and November 19th, respectively. In October, Frontline bought $17.8 million of its convertible bonds at the purchase price of 91.6%. Further in October, Frontline entered into a private agreement to exchange $23 million of its convertible bonds for net aggregate of 8.3 million shares and a cash payment of $10 million plus accrued interest. Then moving to slide 5, financial highlights and slide 6, income statement. Frontline reports a net loss of $59.6 million equivalent to a loss per share of $0.60 in the third quarter of 2014. This compares with a net loss of $78.2 million and a loss per share $0.81 for the preceding quarters. The net loss attributable to Frontline in the third quarter includes an impairment loss of $41.5 million relating to the VLCCs Front Opalia, Front Commerce, Front Comanche and Ulriken. It also includes a loss on de-consolidation of the Windsor Group in the third quarter of $3.6 million. Further a share of results from associates relating to Frontline's share on this income in Frontline's 2012 in the third quarter or approximately $3 million and also a minority interest of $4.7 million relating to minority interest in ITCL. Net income ex these items in the third quarter was $22.3 million, compared with $30.2 million loss in the second quarter. The increase in total operations in the third quarter compared to the second quarter is mainly due to an increase in TCE rates in the third quarter compared to the second quarter which led to an increase in results of time charter basis by 17.1 million. The increase in result on time charter basis led to an increase of 7.5 million in cash repayments, Ship Finance and the German KG's. Net increase in expenses of 3.4 million, this includes an increase in net financial expenses in ITCL of $5 million that was related to the de-consolidation of the Windsor Group. It was an increase in ship operating expenses of $1.7 million mainly experienced by dry-docking two VLCC's in the third quarter and a decrease of depreciation of 3.6 million. Now please move to slide 7, income on time charter basis. Frontline spot VLCC earned $23,900 per day in the third quarter compared with $12,500 per day in the second quarter. The average for the whole fleet includes the TC out of about $24,600 per day in the third quarter compared with $13,900 per day in the second quarter. The Suezmax spot fleet earned $19,500 per day in the third quarter compared with $12,400 per day in the previous quarter. And the average for the whole Suezmax fleet including TC out was about $18,600 per day in the third quarter. Moving then to slide 8, ship operating expenses, the average OPEX for the fleet in the third quarter was approximately $7,400 per day compared with approximately $9,000 per day in the second quarter. We have two dry-dockings in the third quarter compared with one in the second quarter as we can see from the graphs on the upper right hand side of the slide. As we can see from the graph on the lower right hand side of the slide, off hire days was 70 in the third quarter compared with 60 days in the second quarter due to more docking. And we have no scheduled dry-dockings in the fourth quarter of 2014. Moving then to slide 9, the balance sheet, changes to the balance sheet in September 30th is mainly as follows; the cash have increased by $43 million mainly explained by draw down of $30 million relating to delivery of the first Suezmax in the second quarter which was financed by as per end of Q2. Remaining movements relating to increase in cash from operations. Restricted cash in ITCL decrease by $21 million which relates to de-consolidation of the Windsor entities. Vessels and equipments decreased by $260 million mainly as the consequence of the de-consolidation for the Windsor vessels, the transfer of Ulriken vessels held for sale, and impairment loss relating to Front Comanche, Front Commerce, Front Opalia, and Ulriken. Other long-term assets increased by 28 million which is mainly related to Ulriken transfer to [indiscernible]. Long-term debt decreased by $153 million as a consequence of de-consolidation of Windsor and ordinary repayment of capital leases partly offset by draw down of 30 million in the quarter. Equity decreased as a consequence of recorded loss in the quarter partly offset by raising a new equity. Otherwise there were small changes to all the balance sheet items this quarter. Moving then to slide 10, the cash cost breakeven rates. The estimated average cash cost breakeven rates for the remainder of 2014 was $22,900 per day for the VLCC’s and $18,100 per day for the Suezmax’s. These rates are the daily rates our vessels must earn to cover our budgeted operating cost and dry dock estimate interest expense payables, hire and corporate overhead cost. But these rates do not include CAPEX. With this I’ll leave it over to Robert again.

Thank you very much Inger. And let’s now move on to slide 11, earnings and market sectors. In terms of vessel earnings, the third quarter was much better than Q2 but it was by no means a quarter that we are content with. On the positive side we did see an improved fleet utilization driven by an increase in turn miles mainly driven by crude moving from the Atlantic Basin to China. According to the international energy agency, global oil demand increased by 1.6 million barrels per day compared to the previous quarter. The market remains very fragmented in terms of number of owners. We then move on to slide 12 please, the VLCC fleets. There are currently about 635 vessels in the VLCC fleet. There were four vessels delivered in the quarter and two vessels were sold for scrap. In other words Q3 has made little difference to the fleet development which remains fairly balanced. The fleet growth for 2015 is about 30 ships scheduled to deliver while we expect about 45 towards the end of 2016. Scrapping over the next two years we expect to be around 25 units in total but we are hopeful to see an increase in this number due to the increasing costs of third and fourth special survey. Let's move to slide 13 please, the Suezmax's. The fleets currently counts 456. There was one Suezmax delivery in the third quarter and there were two sold for scrap. So, no real change to the fleet in the quarter. However, increased turn mile and new volume coming on stream makes this segment increasingly interesting. Suezmax's also have the flexibility to dip into the Afframax segments. The fleet growth for next year is very limited with nine vessels scheduled to deliver and we expect at least six to be sold for scrap. In 2016 we expect the number to be about 20 new vessels against about 10 to be sold for scrap. Moving on to slide 14, values and rates. The prices are stable from the last quarter, always depending on the specific yard and the final specification. But we estimate the standard VLCC to be priced at $96 million to $97 million and $65 million to $67 million for Suezmax's at the moment. The strength of the U.S. dollar should give some downward pressure on this but it could get absorbed by forward optimism. The time charter market for VLCCs have spurned and is now around $35,000 for three years while the Suezmax for a similar period is around $30,000 per day. Moving on to slide 16, Frontline, we currently have 25 VLCCs and 14 Suezmax's on the water. These numbers include vessels under commercial management. VLCC chartering partnership formed between Frontline and Tankers International was set up in early October. This has created a larger fleet with more flexibility for cargo owners and is also expected to reduce voyage related expenses and thereby improve the net earnings on our VLCCs. We believe that this set up will be profitable for both our customers and the company going forward. Our new building program consist of one Suezmax. The Front Eden [ph] which will be delivered in January 2015. Further new building contracts will not be considered by the company until we have dealt with the company's debt and lease obligations. The company's debt and lease obligations are being worked on and the target is to rebuild Frontline into a leading tanker company. Let's move to slide 17, the market outlook. We are currently seeing the highest tanker fleet you see since 2009. During the last five years the tanker fleets has been utilized at between 80% and 85% and it has even been dipping below 80%. During the five years previous to 2009 the delta was higher 85% to 90%. There are now signs indicating that we could be having impact to a higher utilization environments and thereby a stronger tanker markets going forward. The geography of trading routes has reversed in the last 18 months, the main factors being Atlantic bowels [ph] supplying China and this has in turn increased turn miles for tanker vessels. This increased turn mile has increased volatility which we have seen this year and we expect to lose all the flow of the market to establish at higher levels than what we have seen in recent years. The lower oil price is also helping our TC or vessel earnings through a fall in bunker prices which is our biggest cost. Although the risk of fall in demand will always be present, the recent fall in oil price has reduced the risk of the markets facing reduced demand. The new EK regulations will be introduced from the 1st of January 2015. This explains some of the recent spike in the Suezmax market with high sulphur fuel leaving Europe and the U.S. The crude oil market is seeing strong contango at present. This encourages storageable oil [ph]. For the time being this is primarily land based but availability is scarce meaning we might see storage from tankers especially if the spot market comes off. This is another reason why we expect the market flow to be higher going forward. A very strong Suezmax market in recent weeks has boosted owner’s confidence. The VLCCs are also showing signs of improvements and the market sentiment is turning positive for the balance of the year and into Q1. With that we are ready for your questions.

Thank you. [Operator Instructions]. We’ll now take our first question from Donald McLee of Wells Fargo.

Good morning guys. Inger M. Klemp: Good morning.

It looks like your spot earnings for your Suezmax vessels were a bit lighter than what we were hearing from peers and our marketing indications. Could you maybe provide us some details about you are seeing in the chartering market for those vessels?

Yes, our earnings were slightly below the -- some of our peers but this is from quarter-to-quarter where we will differ and the difference is not large.

Alright, thanks and I’m just looking at your ATM, how many shares do you have remaining into that and I guess with the April maturity coming up, how aggressively should we expect you to issue those? Inger M. Klemp: It’s not a matter of number of shares, it is more a limit and the limit has remained at $39 million.

Okay, great. That’s helpful and I guess the last question is, how should we think about modeling the impact of the Windsor consolidation going forward? Inger M. Klemp: Going forward the Windsor will be consolidated from Frontline's account. So you will not see those numbers in Frontline's account going forward.

Alright, thank you. That were all of my questions. Inger M. Klemp: Thank you.

Thank you. We’ll now take our next question from John Reardon of Merriman Capital

Good morning and thanks for taking my question. Given that the time charter rates have had a nice recovery might we see Frontline or say some of your competitors start to fix ships at longer term charters, just curious?

With the recent increase here it’s something that we will consider and I am sure others will as well.

As a backup question, last year we had one heck of a rate spike and but it had kind of a temporary feel to it. I am not quite sure what costs that ships had a position, etc. this time around I am not saying rates can’t come in a little bit, I was kind of surprised when [indiscernible] Morgan Stanley put out a report and with the chart on V rates and all of them above 30 Grand for the quarter, does this have more of a sustainable feel because of these new oil routes from the Atlantic to the North Asia and does it have more of a sense of permanence to you?

Yes, just one the last slide I think this is looking to be a longer or we will keep longer and also we’ll have higher loss than what we have seen. So on more positive on the market going forward here, than what has been for the recent years.

Just to correct you, you said higher hires and higher lows which is exactly what Doug Parker at U.S. Airlines said when they turned profitable before the stock had a wonderful run. So I had a big grin on my face when you said that. Anyway thank you, and have a great holiday season.

Thank you very much, you too. Inger M. Klemp: Thank you.

Thank you, we’ll now take our next question from Erik Stavseth of Arctic Securities.

Hi guys, jumping right into two questions one, on the company and one on the market. The first company is, you said you wanted to rebuild Frontline into a leading tanker company. Firstly is that purely on the crude side or will it be, would you be considering a mix of product in crude and also any additional thoughts on how that might go about? Inger M. Klemp: There are as we say in the press release, there are several alternatives that we are considering and that many options exist. I think it’s too early to tell what we decide on. So we need to get back to that when we have decided.

Alright, thank you. Second question probably more on the market. I mean we were seeing that the Middle East refineries are hitting their stride with round pops and also getting into full production and I wanted to sort of get your -- if you have any thoughts on the impact on the crude tanker market, I mean Robert you are now listed as the CEO of Frontline Management in both Frontline 2012 and Frontline, so I was curious to get your thoughts on that aspect of the industry?

Now as we were speaking here on the Frontline side, so when it comes to the Middle East, the refineries of this -- and the Red Sea is coming up and it is a very important region in terms of refining capacity.

Alright, thank you.

Thank you. We’ll now take our next question from GJ Cummings [ph] of SolTech [ph]

Yes, good afternoon from London. You seemed quite confident to find a solution for your outstanding bond and lease finance that because you have been buying bonds in the market with cash. Could you give us a ballpark, what is your intention to first deal with the bonds debt and then consequently reduce the lease debt or is that your intention to have a combined solution and to what level do you think you need to reduce your lease debt in order to have a sustainable company and at what level do you think your breakeven cost should be low to have a long-term future and to sustain well whatever balance sheet is left over after a restructuring our equity issue? Inger M. Klemp: As I said earlier, I mean we are in the process now of considering different components.

That’s a little light because you are buying bonds in the market with cash so you must have a little more than just we are considering, what is the lease debt level in your view, to what level does it need to be reduced? Inger M. Klemp: No, we don’t have any limit to that sort of questions that you are asking. But as you’re saying yes we have been buying back bonds and we have also done equity – and that’s probably we can maybe do that also going forward but we haven’t really decided exactly what to do. So it’s hard for me to tell you that tear down in this conference.

But you can’t be buying bonds in the market with cash with having no idea about what you’re doing, so you must have some idea? There must be a solution, you must have a backup plan otherwise you should not be buying bonds in the market with cash?

I think what we are saying is we cannot comment further on this at the moment.

Okay, but can you comment on what you think is a sustainable lease debt level is going forward? Inger M. Klemp: No, we cannot do that either. So we’ll get back to that when we have something to tell.

Right, okay. And what is your view for a long term sort of cost level on breakeven rates. Where do you need to get it to, do you have any ideas on that? Inger M. Klemp: As I said, I think we will get back to these items when we have a solution in place.

Okay. Well in that case I have no more questions? Thank you very much.

Thank you.

Thank you. We’ll now take our next question from Paul Jay [ph] of Washer Meadows Investments [ph].

My question is about the loading ports in the United States, are there any that can load VLCCs for export?

It’s very limited. Let me -- we can have -- I will talk to you separately afterwards, and go into more detail.

Thank you. Happy Holidays.

You too, thank you.

We’ll now take our next question from Eric Harvardson [ph] of Persho [ph]. Eric your line is open if you wish to ask a question?

Sorry guys, for a leading tanker company what’s a suitable fleet age average?

That’s a tricky one to answer.

Okay, I understand. Thank you.

I can't give you a correct answer.

Alright, thank you that was it.

[Operator Instructions]. There are no further questions at this time.

Okay. Then thank you for dialing into this call and I would like to thank everyone at Frontline for their excellent efforts.

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