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Frontline positions itself in a changing market

Wed 11 Jan 2017

Frontline positions itself in a changing market
Front Century/Front Stratus is among Frontlineĺs VLCC fleet

John Fredriksen-controlled Frontline has responded to changes in the tanker market and global oil market by restructuring and streamlining its fleet. The changes have included its participation in the new Suezmax Chartering joint venture with other tanker owners Diamond S Shipping and Euronav, with Frontline contributing 22 of its Suezmax tankers, including eight newbuildings as they are delivered.

Earlier in 2016 Frontline took delivery of five long range (LR2) newbuildings, among a total of 14 LR2 tankers ordered by the owner, of which 11 were due to be delivered during 2016. A total of 17 newbuilds are scheduled for delivery in 2017.

In addition to its traditional VLCC and Suezmax fleets, Frontline is focusing on increasing its presence in the LR2 segment, which is expected to be a growing sector of the tanker market. Frontline Management chief executive Robert Macleod said: “These vessels have the capability to transport both crude and refined products, and while our primary focus has always been on the transportation of crude oil, our increasingly diversified fleet also provides us with leverage to create value in refined products trades and helps to maximise our chartering strategy.”

On the other hand, Frontline sold six medium range (MR) product tankers to owner Ardmore Shipping Corp, effectively exiting that sector of the market. These are relatively modern ships, four of which were built in 2014 – Front Clyde, Front Dee, Front Esk and Front Mersey – and two in 2013 (Front Arrow and Front Avon). The last of the six was delivered to the new owner in November.

Frontline has cancelled newbuild contracts with STX Offshore & Shipbuilding for four VLCCs that were due for delivery in 2017. Announcing this decision, Frontline said that it believes the market will continue to present attractive opportunities, and that it will assess on-the-water and resale assets, which are at historically low prices. In 2016 Frontline has taken delivery of one newbuild VLCC, Front Duke, from Hyundai Heavy Industries, along with two Suezmaxes, Front Challenger and Front Crown, from New Times Shipbuilding in China.

The recent fleet changes have left Frontline operating a total fleet of 69 vessels, comprising 25 VLCCs, 22 Suezmaxes and 22 LR2 tankers. It also operates three chartered-in MR tankers.

Frontline’s third quarter 2016 result shows it earned a net profit of US$5.5 million, despite difficult market conditions, bringing its overall result for the first nine months of the year to US$98.7 million.

Mr Macleod commented: “We believe that our performance in the third quarter further highlights Frontline’s competitive position in the market and efficient operations. Frontline’s low cash breakeven rates, large commercial scale, and historically successful access to capital are significant differentiators that support our leading position in the tanker market.”

Frontline secured US$870 million in new bank debt financing, at what it described as attractive terms, to partially finance a total of 20 newbuilds.

Overall, the company is optimistic that the tanker market will remain healthy with growth in tonne-mile. Frontline is also encouraged by the gradual pace of tanker fleet renewal.