The non-cash items consisted of a $5.8 mill loss on termination of the lease for ‘Front Circassia’, a $0.3 mill mark to market loss on marketable securities, a gain on derivatives of $5.1 mill and a gain on sale of shares of $1 mill.
During the period, three newbuildings were delivered - the VLCCs ‘Front Empire’ and ‘Front Princess’ and the LR2 ‘Front Polaris’.
For 1Q18, Frontline achieved spot TCE of $18,000 per day for its VLCCs less than 15 years of age, excluding the two newbuildings delivered during the quarter.
In general, the daily spot rates for VLCCs in 1Q18 was $14,900, compared to $19,400 in 4Q17; for Suezmaxes $15,400, compared to $19,500 and for LR2s $14,800, compared to $14,400 in 4Q17.
Estimates of spot rates for the second quarter of this year were - $11,600 for VLCCs, $14,500 for Suezmaxes and $12,400 for LR2s.
The company also extended its loan facility of up to $275 mill by 12 months to November, 2019.
Robert Hvide Macleod, Frontline Management CEO, commented: "The spot rate environment was weak in the first quarter as inventory draws impacted a freight market that was already suffering from high fleet growth. While there are encouraging signs that seaborne crude volumes may soon increase as a result of changes by OPEC and a slowing trend of inventory draws, the market is not yet factoring in upside potential."
As of 31st March, 2018, Frontline had agreed a timecharter out contract for one LR2 with expiry in 1Q19 at an average rate of $17,300 per day.
In April, the company entered into timecharter- in arrangements for two VLCCs at $21,250 per day for two years, plus an optional third year at $23,250 per day.
Frontline Shipping (FSL), a non-recourse subsidiary of Frontline, has eight VLCCs built between 2001-2004 on charter from Ship Finance International. The vessels earned about $12,300 per day in 1Q18, the third consecutive quarter these vessels earned less than the base rate of $20,000.
Until the spot market recovers above the base rate, FSL will only pay Ship Finance a charter hire reflective of the rates achieved by these vessels in the spot market.
Frontline will continue to be responsible for operating expenses of the vessels in excess of $9,000 per day.
The vessels continue to trade as crude oil tankers, but together with Ship Finance, the company said that it is actively exploring potential alternative uses for some of the vessels, such as conversion projects, long-term storage or other alternative employment options, with focus on optimising the use of the invested capital.
As at the end of March, 2018, the company’s newbuilding programme comprised of two VLCCs. Total instalments of $32.9 mill had been paid and the remaining commitments amounted to $130.6 mill, of which $75 mill is due in 2018 and $55.6 mill in 2019, respectively.
Frontline has committed bank loans in place to partially finance delivery of the two newbuilding VLCCs and estimated loan amounts of $55.3 mill to be drawn in 2018 and $55.3 mill to be drawn in 2019, respectively.
As mentioned, in February, Frontline extended the terms of its senior unsecured loan facility of up to $275 mill with an affiliate of Hemen Holding by 12 months.
Frontline's total liquidity as at the end of March was around $249 mill, including the undrawn part of the credit facility and marketable securities, net of amounts used as security for borrowings.
The past two years have been characterised by a large growth in the global crude oil tanker fleet, and this growth has continued in 2018, the company said.
Thus far, 13 VLCCs have been delivered in 2018. An additional 43 VLCCs are scheduled to be delivered during the rest of this year.
Although some of these are expected to be slip back to 2019, Frontline expected the final number of deliveries to be between 40 and 45, compared to 50 VLCCs delivered in 2017 and 47 in 2016.
The number of crude oil tanker orders was lower in 1Q18 than in the previous quarter, and the company said that it expected contracting to slow further in the near term.
Newbuilding prices have increased driven by steel costs and constrained shipyard capacity. Scrapping has also increased considerably thus far this year.
According to brokers reports, 22 VLCCs have been scrapped so far and other VLCCs have been sold for near-term scrapping. Consistently high scrap prices, combined with a very weak freight market, have compelled owners of older tonnage to dispose of their vessels at a near record pace.
If the pace of scrapping continues, the global VLCC fleet will see negative growth in 2018, Frontline said. Although this is a positive factor that will help to reduce net fleet growth, it will likely take some time before the market rebalances.
OPEC and non-OPEC production cuts have resulted in crude oil inventory draws, decreased arbitrage opportunities and ultimately reduced the demand for crude oil tankers.
However, Frontline said that it believed that the end of a crude inventory cycle was approaching and that inventories will stabilise and then begin to build again. There is a historic relationship between crude oil inventory levels and freight rates, with periods where rates rise as inventories build and decline as inventories are consumed.
Despite the persistence of a weak rate environment, cyclical changes are underway, and until then, Frontline said that it remained sharply focused on maintaining its cost-efficient operations and low breakeven levels, the company concluded.