INDUSTRY ANALYSIS OF FRONTLINE LTD.

BACKGROUND OF THE COMPANY

• Frontline Ltd. is the world's largest oil tanker shipping company, based in Hamilton,

Bermuda and controlled by John Frederickson.

• Its primary business is transporting crude oil. As of 2008 the company had one of the

world's largest tanker fleets consisting of VLCC, Suezmax and Suezmax OBO carriers.

• As a result of the acquisitions of vessels and companies since 1996, Frontline Ltd. has

established itself as one of the world leaders in the international seaborne transportation

of crude oil, with one of the world's largest fleets of VLCC and Suezmax tankers.

Vision

The Company's vision is to provide the customers with a flexible and

reliable transportation service, and use this flexibility to develop unique

industrial relations that will give material benefits to the customers as well

as to the Company, shareholders and employees

Business strategy

• Emphasizing operational safety and quality maintenance for all of its vessels;

• Complying with all current and proposed environmental regulations;

• Outsourcing technical operations and crewing;

• Achieving low operational costs of vessels;

• Achieving high utilization of its vessels;

• Competitive financing arrangements; and

• Develop relationship to main charterers.

HISTORY

• Frontline Ltd. ("Frontline") has its origin in Frontline AB, which was founded in 1985, and

which was listed on the Stockholm Stock Exchange from 1989 to 1997.

• In May 1997, a decision was made at the general meeting in Frontline AB to change its

domicile from Sweden to Bermuda and to list its shares on the Oslo Stock Exchange.

• The change of domicile was executed through a share for share exchange offer from the

then newly formed Frontline in Bermuda

FINANCIAL RESULTS FROM PAST 3 YEARS

2014 2013 2012

Total operating revenue 559,688 517,190 578,361

Total operating

expense

632,908 641,182 594,212

Net operating (loss)

income

(48,600) (100,434) 18,908

Net other expenses (122,601) (89,160) (89,760)

Net loss before income

taxes and non-

controlling interest

(171,201) (189,594) (70,852)

Net loss attributable to

Frontline Ltd.

(162,938) (188,509) (82,754)

Cash cost break even

VLCC USD 26,400 / day

Suezmax USD 19,400/ day

AREA OF OPERATION

• Seaborne transportation of crude oil and refined petroleum products using VLCC and

Suezmax tankers.

Very large crude carrier (VLCC)

• VLCC have a size ranging between 180,000 to 320,000 DWT.

• They are capable of passing through the Suez Canal in Egypt, and as a result are used

extensively around the North Sea, Mediterranean and West Africa.

• They are capable of passing through the Suez Canal in Egypt, and as a result are used

extensively around the North Sea, Mediterranean and West Africa.

• The cost of a VLCC ranges between $100 million to $120 million depending on its age.

Suezmax Tankers

Suezmax are medium to large-sized ships with a deadweight tonnage (DWT)

between 120,000 to 200,000.

A typical Suezmax vessel would be 275 m (900 ft) in length, 48 m (157 ft) in width, and

16.2 m (53 ft) in draught corresponding to about 150,000 DWT.

VL

PRODUCT AND SERVICES OFFERED BY THE COMPANY

• Frontline ltd is engaged in transporting crude oil and refined petroleum products using

VLCC and Suezmax tankers. It operates in spot market and time charter markets.

• Frontline ltd Provides high quality transportation and cargo handling operations with high

level of reliability, accuracy.

• It has services in almost all major shipping channels

• It maintains advanced systems of transport monitoring and constant updating of

shippers

Type of vessel Number of vessels at the of year 2014

VLCC 30

Suezmax tanker 16

• VLCCs are specifically designed for the transportation of crude oil and, due to their size, are

primarily used to transport crude oil from the Middle East Gulf to the Far East, Northern Europe,

the Caribbean and the Louisiana

• Suezmax tankers are similarly designed for worldwide trading, but the trade for these vessels is

mainly in the Atlantic Basin, Middle East and Southeast Asia.

COMPETITORS

1. Mitsui-OSK (MOL)

• MOL is a Japanese transport company headquartered in Toranomon, Minato, and Tokyo,

Japan.

• MOL's fleet includes (VLCCs) of more than 200,000 DWT and Aframax tankers.

• With a large tanker fleet and decades of extensive experience and expertise, MOL is

truly the energy expert when it comes to developing global tanker operations.

• The fleet also has various types of vessels that meet specific cargo characteristics

• product tankers that transport refined petroleum products such as gas oils, naphtha,

and gasoline,

• chemical tankers and methanol carriers that transport liquid chemical products.

• Liquefied petroleum gas (LPG) carriers.

• In total the company controls 40 VLCCs, 6 LR2s, 5 Aframaxes, 12 LR1s, 26 MRs and 13

Handy size tankers

b) Nyk Group.

• NYK Line, is one of the largest shipping companies in the world. The company has its

headquarters in Chiyoda, Tokyo, Japan.

• Tanker Transport division operates very large crude carriers (VLCCs) and Aframaxes

tankers that transport crude oil.

• The NYK Group’s fleet stands at 33 VLCCs, four Aframaxes, 5 LRs, 24 MRs and 5

chemical carriers.

c) National Iranian Transport Company- (NITC)

• The National Iranian Tanker Co. transports Iranian crude to export markets and is also

responsible for the distribution of oil products to Iranian ports and island ports and

islands located in the Persian Gulf.

• NITC fleet stands at 37 VLCCs, nine Suezmaxes , five Aframaxes and three products

tankers.

COMPETITIVE ANALYSIS

Analyzing top two competitors of Frontline ltd. i.e. MOL, NYK Group.

1. Mitsui O.S.K Lines, Ltd

• MOL tanker fleet — crude oil tankers (mainly VLCCs), petroleum product tankers,

chemical product tankers, and LPG carriers — and its global leadership in all related

fields.

• As an expert in energy transport, they have developed a comprehensive safe operation

system covering our entire lineup of vessels

MOL founded the VLCCs and LR1 product tankers pool Management Company to enable

them to cater more precisely to customer’s requirements and to maintain the high quality

of services.

a) Tanker fleet

Type At the end of march 2014

Crude oil tankers 38

Product tankers 59

Chemical tankers 72

LPG tankers 11

b) Corporate profile

• Capital : 65,400,351,028yen

• Number of shareholders : 109,304

• Number of shares Issued : 1,206,286,115

• Major shareholders : Japan Trustee Services Bank, Ltd,

The Master Trust bank of Japan, Ltd,

Mitsui sumitomo insurance Co.Ltd ,

Trust & Custody Services Bank, Ltd,

Juniper, The bank of New York Mellon

c) Corporate Principle

1. As a multi-modal transport group, actively seize opportunities that contribute to global

economic growth and development by meeting and responding to its customers' needs

and to this new era.

2. Maximize corporate value by always being creative, continually pursuing higher

operating efficiency and promoting an open and visible management style that is guided

by the highest ethical and social standards

3. To promote and protect environment by maintaining strict, safe operation and

navigation standards

d) . Vision

To make the MOL Group an excellent and resilient organization that leads the world

shipping industry.

e) . Values

“CHART" stands for five words that express the company's shared values – "Challenge,"

"Honesty," "Accountability," "Reliability," and" Teamwork."

f) . Financial results

• Results for Q3 of fiscal year 2014

g) . Strengths and weakness

Strengths:

1. Currently having 15.8 million dwt (dead weight tonnage) plus 74000 dwt new building.

2. Tanker section caters to many different needs of the customer. (Crude oil, product, LPG,

Chemical)

3. MOL focuses on enhancement of the fleet's quality as well as seafarer education and

training to establish an optimum safe operation system.

4. The MOL Group owns ship management companies specializing in tankers. MOL

consolidates the tanker operation know-how accumulated at these companies to improve

customer services and ensure safe and efficient operation

5. MOL's in-house training centers provide seafarers with extensive education and training

programs backed by the MOL Group's rich experience in tanker operations including cargo

loading and discharging

Weakness:

1. Shipping has derived demand, if in case oil and LNG industries goes into crisis the

company will find it difficult to perform its normal operations smoothly

2. NYK Group

a) Tanker Fleet

Crude oil tankers 35

Product tankers 26

Chemical tankers 5

LPG carriers 10

Ammonia carrier 1

b) Corporate profile

Capital : JPY 144,319,833,730

Number of shares issued : 1,700,550,988 shares

Number of shareholders : 137,550

Major shareholders : The Master Trust Bank of Japan, Ltd.

Japan Trustee services Bank

Tokyo Marine & Nichido Fire insurance Co. Ltd

Mizuho Bank, Ltd.

Number of employees : 1590

c) Mission Statement

“Through safe and dependable transport, we contribute to betterment of societies throughout the world as

a comprehensive global-logistics enterprise offering ocean, land, and air transportation.”

d) Values

• Integrity

• Innovation- Continually think of new ideas for improvement

• Intensity- Carry through with and accomplish your tasks. Never give up.

Overcome challenges. Remain Motivated.

d) Financial performance

e) Strength and Weakness

Strengths:

1. The company is having 12.6 million dwt( dead weight tonnage)

2. The Tanker section caters to many different needs of the customers.(crude oil, refined petroleum

products ,LNG, chemical products, Ammonia)

3. Management has include Fleet expansion and investment as part of medium term management

plan.

Weakness:

1. Most of the vessels is very old compared to its competitors. Age of the ship plays a

crucial role on the freight rate and demand

2. Core area of operation is container shipping. Therefore it lack expertise in tanker

shipping when compared to competitors.

ENVIRONMENT OF THE COMPANY

1. Analysis of Macro environment

a) Tanker trade

• Developments in the world economy have shaped the tanker trade.

• defining factors included the high oil price levels, demographics, geopolitical

uncertainties, technology and energy efficiency gains, and also changes in supply and

demand with traditional consumer markets such as the United States emerging as large

suppliers and potentially large exporters of crude oil.

Crude oil

Global crude oil shipments fell by 1.7 per cent in 2013 with total volumes averaging

1.8 billion tons. Factors at play included the supply and demand dynamics resulting from

geopolitical disruptions, growing domestic production in the traditionally largest consumer

market, as well as the overall weak global economic conditions and constrained demand.

Refined products

• Total global refinery capacity increased by 1.4 per cent in 2013 at more or less the same rate

as the previous year, with volumes reaching 94.9 million bpd.

• Capacity is projected to expand driven by expansion projects in Asia, in particular China and

India.

• Refineries are increasingly being closed down in Europe as environmental constraints in the

OECD region continue to grow and as competition from refineries in Asia grows.

• In 2013, oil product shipments increased by 4.7 per cent, compensating to some extent for

the drop in crude oil shipments.

Natural gas and liquefied gases

• Global natural gas production grew by 1.1 per cent in 2013.

• Growth in global LNG trade nearly came to a standstill (0.3 per cent) in 2013, while

increased imports into developing America, China and the Republic of Korea were

partially offset by lower imports in France, Spain and the United Kingdom of Great

Britain and Northern Ireland.

• Qatar remained the largest LNG exporter with a 32.4 per cent share of global LNG

exports.

b) Environmental and Other Regulations

• Government regulations and laws significantly affect the ownership and operation of

vessels. Shipping companies are subject to international conventions, national, state

and local laws and regulations in force in the countries in which vessels may operate or

are registered and compliance with such laws, regulations and other requirements may

entail significant expense.

• Vessels are subject to both scheduled and unscheduled inspections by a variety of

government

• Failure to maintain permits, licenses, certificates could require to incur substantial costs

or temporarily suspend operation of one or more of vessels.

• Increasing environmental concerns have created a demand for vessels that conform to

stricter environmental standards

• future serious marine incident that results in significant oil could result in additional

legislation or regulation that could negatively affect profitability.

Reduction of greenhouse gas emissions from international shipping and energy

efficiency

• Issues related to the reduction of GHG emissions from international shipping continued

to remain an important area of focus of the work of the IMO Marine Environment

Protection Committee (MEPC).

• Continuous improvements to ships’ design and size, as well as operational measures

including better speed management during the course of a ship’s voyage are being

adopted.

• the consumption of fuel, and consequently emissions of CO2, the primary GHG emitted

through its burning, and the largest contributor of GHG emissions from human activities,

remains a strong incentive for shipping.

Energy efficiency for ships

• During its sixty-sixth session, the MEPC continued its work on further developing

guidelines to support the implementation of the mandatory regulations on energy

efficiency for ships, set out in chapter 4 of MARPOL annex VI

Air pollution from ships

• IMO is working on regulations to reduce emissions of other toxic substances from

burning fuel oil, particularly SOx and NOx.

2. Analysis of Micro environment

a) Customers

• OPEC made the deepest cut to its forecast for oil-supply growth from countries outside

the group in at least six years, saying a price rout means U.S. drillers will produce less

than previously anticipated.

• Non-OPEC nations will pump about 400,000 barrels a day less than previously

estimated

• During the year ended December 31, 2014, one customer represented 14% of consolidated

operating revenues and one customer represented 10% of consolidated operating revenues.

b) Competitors

• The market for international seaborne crude oil transportation services is highly fragmented

and competitive

• Seaborne crude oil transportation services are generally provided by two main types of

operators: major oil company captive fleets (both private and state-owned) and independent

ship-owner fleets.

• Many major oil companies also operate their own vessels and use such vessels not only

to transport their own crude oil but also to transport crude oil for third-party charterers.

• Competition for charters is intense and is based upon price, location, size, age,

condition and acceptability of the vessel and its manager

• Competition is also affected by the availability of other size vessels to compete in the

trades in which the Company engages

c) Seasonality

• Historically, oil trade and, therefore, charter rates increased in the winter months and

eased in the summer months as demand for oil in the Northern Hemisphere rose in

colder weather and fell in warmer weather.

• Consumption is spread more evenly. This is most apparent from the higher seasonal

demand during the summer months due to energy requirements for air conditioning and

motor vehicles.

THE FOUR P’S OF MARKETING

1. Product

• Service offered frontline ltd is transportation of Crude oil, refined petroleum products

• Frontline ltd is having VLCCs, Suezmax tanker, Long range tankers and product tanker.

2. Promotion

• Shipping industry is a very unique industry in terms of promotion of service. Ship-owner

and Cargo owner never interact directly. Charterers and Ship brokers act as

intermediaries.

• Ship-owner contact ship broker for employment of the vessel. He also specify the freight

rate to broker. Cargo owner is represented by charterer. Charterer and broker will do the

negotiation and finally the vessel will be employed.

3. Price

• World scale is a unified system of establishing payment of freight rate for

a given oil tanker’s cargo.

• The freight rate is not fixed and it depends on lot of factors, it includes

both Micro economic and Macro economic factors.

The main charges are,

1. Basic ocean freight:

2. The mandatory surcharges:

3. Value added services

4. Place

Shipping has no international boundaries.

Customers of Frontline ltd is located in

Middle East, Europe, north Asia, south

and south East Asia,

Frontlines total trade distribution Region

wise

CUSTOMERS OF THE COMPANY

• Repeat business is the backbone of selling. It helps to provide revenue and certainty for

the business. Organizations are dependent upon their customers.

• The main customers of Frontline are:-

Gazprom, Eni, PETRONAS, Kuwait Petroleum Corporation, Valero, Royal Dutch Shell.

SWOT ANALYSIS

Strengths

1. Global economy increased by 2.1%

2. Asian subcontinent is growing in past years.

3. Growth in sub Saharan continent increased in 2014

4. Focus on horizontal trade and focus only on specific segment of industry

5. A large portion of Frontline's vessels trade in the spot market. Spot market rates are typically

higher than time charter rates to compensate for the lack of confirmed continual employment

6. Increasing global environmental concerns have created a demand in the petroleum

products/crude oil seaborne transportation industry for vessels that are able to conform

to the stringent environmental standards currently being imposed throughout the world.

7. Frontline has a strategy of extensive outsourcing. Ship management, crewing and

accounting services are provided by a number of independent and competing ship

management companies

Weakness

1. Most of the vessels owned by the Frontline ltd is old. Age of the vessel plays a crucial

role in its employment.

2. Oil companies are cutting down production as a result of declining oil price. Main

business of Frontline Ltd is transportation of crude oil. Shipping has derived demand,

if in case oil industries goes into crisis the company will find it difficult to perform its

normal operations smoothly.

Opportunities

1. LNG

• LNG becomes more attractive because of increased restrictions on carbon emission.

Demand for natural gas is increasing exponentially worldwide which resulted in increased

demand LNG ships and their service. Frontline ltd could make use of this opportunity by

adding LNG carriers into its fleet

• Global Natural Gas production increased in USA in 2014. New fields are coming in Asia

pacific, Caspian region, Western Africa and Asia. Increased demand in Asia especially India

and China. New LNG projects are also coming up in Australia, Indonesia, Malaysia,

Singapore and Russia

2. Dry Bulk

• Dry bulk trade is projected to grow at a rate of 4-5%. Frontline ltd can enter into dry bulk

market by adding bulk carriers into its fleet. There is an increased production and

demand of iron ore especially in china.

• The coal trade also increased by 4.8% in 2014. Asia’s demand for coal is fast growing,

china’s demand alone increased by 75% in past decade.

Threats

1 . G e o p o l i t i c a l d i s r u p t i o n s i n A s i a n a n d A f r i c a n s u b - c o n t i n e n t .

2 . G r o w i n g d o m e s t i c p r o d u c t i o n .

3 . We a k G l o b a l e c o n o m i c c o n d i t i o n s a n d c o n s t r a i n e d d e m a n d s .

4 . R e f i n e r y c l o s u r e i n E u r o p e b e c a u s e o f e n v i r o n m e n t a l p o l l u t i o n

( O E C D ) .

5 . M a j o r c o m p e t i t o r s o f F r o n t l i n e l t d a r e i n c r e a s i n g t h e i r f l e e t s i z e ,

w h i c h w i l l r e s u l t i n r e d u c e d m a r k e t s h a r e f o r t h e c o m p a n y.

SEGMENTATION

FRONTLINE LTD.

CRUDE OIL TANKER

VLCC SUEZMAX

PRODUCT TANKER

SUEZMAX

STRATEGIES OF THE COMPANY

Frontline has a strategy of extensive outsourcing

• Frontline's vessels are managed by independent ship management companies.

• Independent ship managers provide crewing for Frontline's vessels. Currently, most

vessels are crewed with full Russian crews, while others have full Indian or full Filipino

crews, or combinations of these nationalities.

• A large portion of Frontline's vessels trade in the spot market. Spot market rates are

typically higher than time charter rates to compensate for the lack of confirmed continual

employment.

• Frontline seeks to maximize earnings in employing vessels in the spot market or under

time charters or under contracts of affreightment ("COA").

• Increasing global environmental concerns have created a demand in the petroleum

products/crude oil seaborne transportation industry for vessels that are able to conform

to the stringent environmental standards currently being imposed throughout the world