Frontline, the crude oil tanker operator that had to berescued from looming insolvencyin December, returned to profit in the first quarter as oil tanker rates recovered from the lossmaking levels of late last year.
The company nevertheless said it would remain “cautious” and focus on its present activities until the market showed clearer signs of recovery.
Frontline’s results come a day after Frontline 2012, the company created as part of Frontline’s restructuring, announced it planned to invest in new liquefied petroleum gas tankers and dry bulk ships because its core tanker market was so weak.
The largest shareholder in both Frontline and Frontline 2012 is John Fredriksen, the world’s highest-profile shipowner. Many of the longer-established Fredriksen group companies look set to follow conservative strategies in the immediate future, while Frontline 2012 takes on debt to invest heavily in new ships.
Frontline’s recovery reflected improved tanker market conditions. The company’s Very Large Crude Carriers, which carry 2m barrels of oil each, earned an average $25,400 a day in the first quarter, against $16,800 a day in last year’s fourth quarter, while average daily earnings for its 1m barrel Suezmax tankers improved from $12,400 to $19,500.
Tanker rates plunged in the second half last year to well below operating cost levels as a result of a worldwide surplus of ships and lacklustre demand growth. The conditions pushed General Maritime, owner of one of the world’s largest tanker fleets, into Chapter 11 bankruptcy protection.
The improved rates produced net income for the quarter of $7.18m on $167m revenue, against $15.5m net income on $235m revenue for the same period last year. The first-quarter profit compares with a $344m net loss for the fourth quarter last year, mainly as a result of write-offs associated with the restructuring.
Frontline’s fleet remains one of the highest-capacity crude oil tanker fleets worldwide. It operates 15 Suezmax tankers, 42 VLCCs and five Suezmax OBO vessels – ships equipped to carry either oil or iron ore.
Under the restructuring, Frontline negotiated lower rates to charter its vessels, most of which are owned by Ship Finance International, another Fredriksen Group company. However, rates were so much better than expected in the quarter that they triggered clauses allowing the owners to recoup some of any unexpected profits. Frontline paid out $14.9m under such arrangements in the quarter.
The market had improved more strongly than expected in the first quarter and so far in the second quarter, the company said.
“Based on results achieved so far in the quarter and the current outlook, the board expects the operating result in the second quarter to be better than in the first quarter,” it said.
There was no dividend for the quarter. The shares, which are listed in Oslo and New York, rose NKr2.19, or 7.23 per cent, in Oslo to NKr32.50.