Frontline Loses $343.7 Million as Tanker Owner Splits Fleet

Frontline Ltd., the owner of 40 oil tankers led by billionaire John Fredriksen, said fourth-quarter losses widened as the company split to withstand the worst rout in rates for 12 years.

The net loss for the final three months of 2011 was $343.7 million compared with $11.9 million a year earlier, the Hamilton, Bermuda-based company said in a statement today. That included $312.9 million from the sale of ships as part of the restructuring. Shares slid 2.1 percent to close at 27.7 kroner in Oslo trading, cutting the company’s market value to 2.16 billion kroner ($378.4 million).

Frontline said in November it risked running out of cash and sold its most modern vessels and outstanding orders at shipyards to a new company called Frontline 2012. The largest oil tankers earned $22,137 a day last year, 77 percent less than their peak in 2004 and the lowest annual average since 1999, according to data from Clarkson Research Services Ltd., a unit of the world’s largest shipbroker. The company may return to profit this year, Jens Martin Jensen, chief executive officer of Frontline’s management unit, said in an interview.

“The successful completion of Frontline’s restructuring has positioned it to weather persisting weakness in the crude tanker market,” Omar Nokta, a New York-based analyst at investment bank Dahlman Rose & Co., said in an e-mailed report today. “We continue to view Frontline as if it were a ‘closed-end fund.’”

More VLCCs

The total capacity of the largest oil tankers, known in the industry as very large crude carriers, will expand 6.4 percent this year, Clarkson estimates. Global oil demand will grow 0.9 percent, according to the International Energy Agency. The number of VLCCs swelled 13 percent to 563 since the end of 2007, when daily earnings reached $229,000, according to data from Clarkson and Redhill, England-based IHS Fairplay.

Frontline has as many as three more ships that could be sold in the next six months, Jensen said on a conference call. The price of 10-year-old VLCCs are bottoming, he said.

The restructuring included the sale of five VLCCs on order, six modern supertankers and four Suezmax tankers to Frontline 2012 for $1.23 billion.

Frontline’s biggest ships need $23,900 a day to break even. That’s more than the $12,094 anticipated by freight derivatives next quarter on the benchmark Saudi Arabia-to-Japan voyage, data from London-based broker Marex Spectron Group show. Earnings this quarter are about $16,000 a day, Frontline said.

‘Positive Territory’

“It doesn’t take much more market development to happen before we could be moving into positive territory again,” Jensen said. “It could be before the end of the year.”

In a sign that the drop in vessel prices may be near an end, Fredriksen ordered six oil-product tankers from STX Offshore & Shipbuilding Co. for 235.5 billion won ($209 million), the Changwon, South Korea-based company said Feb. 14.

“Mr. Fredriksen can see we are entering into a phase where there’s more and more good opportunities coming,” Jensen said. “The worst thing that could happen is that we have been through two very hard years and if there’s a recovery in maybe 12 or 24 months time it would be quite sad if you haven’t done anything before the recovery comes.”

New tankers are the cheapest in as many as 15 years and save money by using less fuel than older ships, industry newspaper TradeWinds and London’s Financial Times cited Fredriksen as saying in the past two weeks. The billionaire plans to make a “substantial” order later this year for VLCCs, according to the FT.

The new tankers will probably go to Frontline 2012 or Fredriksen could also own them through his own company, according to Jensen.

“We have just come out of a restructuring and are trying to find our feet,” Jensen said on the call today. “There are no immediate plans for further acquisitions.”

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