August 19, 2004

Frontline reports best ever half year results

Frontline Ltd. yesterday reported its best ever half year results and announced plans to spin off its dry bulk vessels into a separate company/

The company reported net income of $169.2 million for the second quarter of 2004, equivalent to earnings per share of $2.29.

Operating income for the quarter was $183.5 million.

Frontline says the tanker market remained strong in the second quarter although at lower levels than experienced at the start of 2004.

Average daily time charter equivalents ("TCEs") earned in the spot and period market by Frontline's VLCCs, Suezmax tankers, and Suezmax OBO carriers were $58,500, $36,700 and $27,000, respectively, compared with $74,900, $59,100 and $26,100 respectively in the first quarter of 2004.

Frontline announced net income of $383.6 million for the six months ended June 30, 2004, equivalent to earnings per share of $5.20. This is the best half year result ever recorded by the company.

As of August 18, 2004, Frontline had cash breakeven rates on a TCE basis for VLCCs and Suezmaxes of $21,784 and $15,788, respectively.

SHIP FINANCE SPIN OFF On June 16, 2004, Frontline completed the partial spin off of its Ship Finance unit.

Frontline distributed 25 per cent of Ship Finance's common shares to Frontline's ordinary shareholders with each Frontline shareholder receiving one share in Ship Finance for every four Frontline shares held.

On June 17, 2004, Ship Finance common shares commenced trading on the New York Stock Exchange under the ticker symbol "SFL".

The Board has decided to distribute a further 10 percent of the company's holding in Ship Finance. Frontline shareholders of record as of September 10, 2004 will receive one share in Ship Finance for every ten shares they hold in Frontline. The distribution of shares is expected to take place on or about September 24, 2004. The decision on the final distribution of Ship Finance will be taken later this year.


The Frontline Group has as of today a large presence in the dry bulk market. All the eight OBO carriers owned by Ship Finance are currently chartered out medium term in this market. In addition Frontline owns two capesize vessels and one handysize which were acquired as part of the original Golden Ocean acquisition. The dry bulk market has during the last year shown substantial strength driven by a modest delivery schedule and strong demand, particularly for iron ore and coal.

In view of Frontline's strategy to be a pure tanker company, the Board feels that the dry bulk assets will give a higher value to shareholders if developed in a stand alone company.

The Board has therefore taken a principal decision to seek to establish a new dry bulk company, which is likely to be spun off to existing holders of Frontline shares. The equity in the three "Golden Ocean" ships will, together with the ships' contracts and some further cash, create the core part of the dry bulk company. Based on the existing contracts the company is expected to be profitable from the first day of operation.

The dry bulk company is likely to have an aggressive growth ambition focused on consolidation. The strategy will include ownership, chartering, as well as contract positions. The Board is currently putting together the organization to run the new company. A detailed clarification on how the new company will be spun off to Frontline's shareholders is expected to be given within the next months.

The structuring of Frontline as a chartering company has substantially reduced the use of capital and thereby the need to reserve capital for long-term expansion. The Board will instead seek to optimize medium-term cash generation in order to give the highest possible return to shareholders. A major part of this return is likely to be given in the form of a dividend. In order to maximize the direct return to shareholders the company will also consider tanker deals, which normally would not have been a part of the old Frontline. The recent purchase of three Suezmaxes with anticipated full pay off to current residual value in one year, based on existing forward rates, is an illustration of such a deal.

Frontline today has 12 ships on charter from different German KGs. Frontline has purchase options for all these vessels. Most of these options becomes declarable for the first time six years after the contract was entered into. The first two vessels will become declarable at the end of this year. The market price for the vessels is today approximately $11 million higher than the declaration price.

Frontline will therefore consider declaring these options at the first declaration opportunity and subsequently initiate discussion with Ship Finance to secure alternative financing of these vessels. Such a transaction is likely to reduce Frontline's cost of capital, increase the company's cash position, and at the same time increase earnings and growth rate for Ship Finance. Frontline owns approximately 20 percent of the leading market place for tanker futures IMAREX and is by that the leading shareholder. IMAREX is in a strong positive development, and Frontline will consider steps in order to maximize the value of its investment in IMAREX.

Outlook So far in the third quarter, Frontline has chartered out approximately 75 percent of its VLCC capacity and 65 percent of its Suezmax capacity at TCE rates of around $62,000 and $38,000. The current market is higher than the average rates achieved so far this quarter. The tanker market looks healthy for the remainder of the year. The freight futures market is reflecting this view, and at the moment it is possible to sell freight futures for the rest of the year at a level that equates to approximate TCE rates of $81,000 per day on VLCCs and $60,000 per day for next year. For Suezmaxes the TCE rate for the rest of the year is $47,000 and $40,000 for next year.

The net income, as well as the dividend for the second half of 2004, will, in addition to the general market, be influenced by which model the Board will use for the divestment of Frontline's remaining 63 percent holding in Ship Finance, the profit sharing to be paid to Ship Finance, the financial hedging and also by the capitalization and spin off model of the new Bulk Company.

The current long-term rate in the tanker market is today significantly higher than Frontline's cash break even rates. A fixture of part of the fleet will thereby reduce the financial risk and secure return to shareholders.

The Board is currently evaluating several of these opportunities.


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