Bloomberg News

Frontline Slumps on Forecast for Tanker Returns to Worsen

August 29, 2012

Frontline Ltd., the world’s largest operator of supertankers, reached an eight-month low in Oslo trading after forecasting deteriorating returns from carrying oil by sea.

The shares fell as much as 9.5 percent to the lowest level since Dec. 16, according to figures compiled by Bloomberg. Its board expects a “significantly worse” operating result for the current quarter, the Hamilton, Bermuda-based company said today in a statement. Frontline, led by billionaire John Fredriksen, also had a larger-than-estimated second-quarter loss.

While stockpiling of crude helped rates rally as much as 63 percent in the year’s first four months, daily earnings averaged $10,859 so far this quarter, heading for the lowest level since at least 1997, according to data from Clarkson Plc, the world’s largest shipbroker. The tanker market will stay “challenging” after the combined fleet of very large crude carriers and Suezmax ships almost doubled since 2004, Frontline said.

“We do not see a reason to own Frontline on the back of the results for the second quarter and the outlook for the second half of 2012,” Erik Nikolai Stavseth, an analyst at Arctic Securities ASA in Oslo, said in an e-mailed note today. He advises selling the shares.

Frontline slid 7.6 percent to 19.77 kroner by 2:22 p.m. in Oslo, reducing the company’s market value to 1.54 billion kroner ($264.2 million). The stock reached 19.35 kroner. It’s down 22 percent this year, headed for a sixth annual drop in seven.

Analyst Estimates

The net loss of $11.2 million, or 14 cents a share, for the three months through June reported by the tanker company compared with the average of 16 analyst estimates compiled by Bloomberg for a $1.61 million loss. Frontline lost $35.2 million, or 45 cents a share, a year earlier and had net income of $7.18 million, or 9 cents, in 2012’s first quarter.

Daily income for the largest oil tankers plunged 74 percent this year to $7,637, Clarkson data show. Earnings reached as high as $51,413 on April 6 as China stockpiled the most oil since preparing for the 2008 Olympics in Beijing and U.S. inventories reached a 22-year high. The fleet will expand 6.9 percent this year, outstripping 3.9 percent growth in cargo demand, the London-based broker’s research unit estimates.

Frontline split in two in December to avoid running out of cash amid the lowest rates since 1999. The company’s VLCCs earned $31,000 a day on average last quarter in the spot and period market, compared with $25,600 in the preceding period. The ships, each able to hold 2 million barrels of crude, need $23,900 to break even, according to the statement.

Second-quarter sales fell 20 percent from a year earlier to $176.6 million. Ship operating expenses increased by $5.9 million from the preceding quarter.

Frontline said no dividend will be paid in respect of the latest period. The company scrapped the payout in the fourth quarter.

To contact the reporter on this story: Isaac Arnsdorf in London at iarnsdorf@bloomberg.net

To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net


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