Frontline Third-Quarter Profit Falls 76%

Frontline Third-Quarter Profit Tumbles on Hire Rates
By Alaric Nightingale
Nov. 15 (Bloomberg)

Frontline Ltd., the world's biggest operator of supertankers, said third-quarter profit tumbled 76 percent as it leased out ships for less and fuel costs surged.

Net income fell to $24.2 million, or 32 cents a share, from $98.8 million, or $1.32, a year earlier, Hamilton, Bermuda-based Frontline said in a statement to the Oslo stock exchange today. That missed the $40 million, or 53-cents-a-share, median estimate of seven analysts surveyed by Bloomberg.

Refineries are cutting crude-oil imports because of reduced processing margins, Frontline said. At the same time, fuel costs for shipping lines are increasing as oil prices reach a record. Tanker-rental rates also shrank because of the ``high availability'' of ships, the company said.

``They are hardly making any money,'' said Siri Evjemo Nysveen, a broker at Kaupthing Ltd. in London, who until September covered Frontline as an analyst at the bank. ``This is a very negative report.'' The company may be forced to cut its profit outlook for 2008, she said.

The shares closed down 3.5 kroner, or 1.6 percent, to 213 kroner in Oslo trading, the lowest since April 26. The slide pared the stock's advance this year to 19 percent, valuing the company at 15.9 billion kroner ($2.9 billion).

Earnings from Frontline's very large crude carriers, or VLCCs, declined 39 percent to $36,000 a day, while those from its 1 million-barrel carriers declined 37.5 percent to $25,000 a day. Breakeven levels are $30,000 and $22,100 respectively.

Independent Tankers

Frontline's third-quarter sales slumped 32 percent to $276 million. Profit included a gain of $4.8 million on the sale of the tanker Front Horizon. Excluding that transaction, net income was $19.3 million, less than the $28 million, or 38.5-cent-a- share, median estimate from 10 analysts.

The company is continuing to investigate ``alternatives and options'' for its Independent Tankers Corp., a Cayman Islands- based business that owns 10 tankers leased out on fixed-rate charters to BP Plc and Chevron Corp., Chief Executive Officer Bjoern Sjaastad said on a conference call today.

Frontline would have to make a deal with bondholders and the oil companies who are leasing the ships before it could sell the company or the vessels it owns, Sjaastad said. ITC's outstanding debt is $469.7 million and it is paying an 8.5 percent interest rate to finance its ships.

Tanker Sale

Operating performance in the final three months of the year will be ``in line'' with the third quarter, Frontline said. Net income will be buoyed by the sale of shares of Imarex NOS ASA, an Oslo-based derivatives broker, and Dockwise Ltd., a company that hauls oil rigs.

World oil demand will rise 2.3 percent next year, Frontline said, citing data from the International Energy Agency, an adviser to 26 nations.

The carrying capacity of the global fleet of VLCCs will climb almost 6 percent to about 156.5 million tons in 2008, from about 148 million tons at the end of this year, according to estimates from London-based shipbroker Galbraith's Ltd.

The Galbraith's assessment assumes 40 new VLCCs will enter service next year, each with a capacity of about 310,000 tons, and 15 carriers that can each haul about 260,000 tons will be switched to other trades.

At least 38 VLCCs will be converted to ``non-trading purposes'' worldwide by the end of 2008, Frontline said today. Of those ships, 90 percent will become iron-ore carriers, and 10 percent will be turned into storage and production vessels.

The company plans a dividend of $1.50 a share for the third quarter. Frontline has said it plans to pay about 100 percent of profits to shareholders in the form of dividends.

About 40 percent of Frontline's fleet is protected from possible declines next year in the single-voyage, or spot, market through shipping contracts with oil companies that pay a fixed daily amount.