Frontline Ltd., the world’s biggest oil-tanker company, said third-quarter profit quadrupled to a record and earnings next quarter will be twice as high as demand for vessels outpaces supply.
Net income jumped to $150.6 million, or $2.02 a share, from $37.9 million, or 52 cents a year earlier, Frontline said in a statement today to the Oslo exchange. Sales at the Bermuda-based company, controlled by Norwegian shipowner John Fredriksen, rose 86 percent to $410 million.
“We’re sailing in the strongest tanker market ever,” Oscar Spieler, chief executive of Frontline’s operations division, said at a presentation in Oslo. “Money is flowing in and spirits are very high.”
Frontline and Teekay Shipping Corp., based in the Bahamas, are set to report a second year of record profits as a global economic expansion led by China boosts oil consumption. OPEC, the source of a third of the world’s oil, is pumping near capacity to curb record prices.
Spot-market rates for 2 million-barrel vessels are at record levels on most routes, and have more than tripled in the past year from the Persian Gulf to Asia. Rates may decline next year as shipyards deliver new vessels, boosting supply, and growth in oil demand slows.
Rates Outlook
“The next couple of years won’t be as good as this year,” said Ivar Larsen, an analyst at Enskilda Securities in Oslo, who recommends buying Frontline shares. “Still, rates will be very high.” He estimates a fourth-quarter dividend of $5 a share, twice the third-quarter level.
Frontline’s operating profit more than tripled to $220.5 million, beating the $208 million median estimate in a survey of eight analysts by TDN Finans. The analysts had forecast net income of $156 million.
Frontline shares were up 11 kroner, or 3.1 percent, to 367 kroner in Oslo at 12:31 p.m. They earlier reached 369 kroner, matching the all-time high from Oct. 11. The stock has almost tripled this year, valuing the company at 27.3 billion kroner ($4.4 billion).
In addition to the cash dividend, the company will give shareholders a 13.2 percent stake in its Ship Finance International Ltd. unit as an extraordinary dividend. The unit’s shares have surged 78 percent since trading began in the U.S. in June, giving it a market value of $1.59 billion.
OPEC Output
The Organization of Petroleum Exporting Countries pumped an average of 30 million barrels a day in the third quarter, according to Bloomberg data. The increase of almost 3 million barrels from a year earlier would boost monthly VLCC demand by about 45 units from exporters such as Saudi Arabia and Kuwait.
“Cargo owners are concerned they won’t find available ships,” Spieler said. “We believe the market will stay very strong through February.”
Frontline runs most of its ships in the spot market on single- voyage contracts, hauling crude for oil companies such as Exxon Mobil Corp. and BP Plc. Tanker rates, measured by the Worldscale standard, averaged WS 120 in the third quarter for cargoes of about 260,000 tons from the Persian Gulf to Japan, according to Bloomberg data. That’s up from WS 67 a year earlier. Spot rates rose to a record WS 342 on the route last week.
Frontline operates 35 very large crude carriers, or VLCCs, each able to carry 2 million barrels of oil, and 22 Suezmax tankers that can haul 1 million barrels each. The company also has eight combination ships that can haul either oil or iron ore.
Income from Frontline’s VLCCs rose to $67,200 a day from $28,200 a year earlier, after deducting voyage-related costs such as fuel and port fees. Earnings from Suezmax tankers, the biggest to navigate the Suez Canal with a full cargo, rose to $45,900 a day from $22,000.
The VLCCs had a daily break-even requirement of $26,813 a day in the third quarter and the Suezmaxes needed more than $19,788 a day to make a profit. VLCCs earn more than $200,000 a day from the Middle East to Asia.
Cash Flow
“In the last few weeks of December, we will have cash flow of about $50 million a week,” said Tom Jebsen, Frontline’s chief financial officer.
The company said it lost $17.2 million on freight future agreements contracts in the quarter. It also booked a loss of $10.9 million on interest-rate swaps in the period.
A planned spin-off of some of Frontline’s dry-bulk vessels is taking longer than anticipated and is now scheduled for Dec. 1, the company said. The dry-bulk company will be named Golden Ocean Group Ltd. and will have its shares traded on the Oslo exchange.
Bloomberg
