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Frontline reports $78.9m Q1 profit, upbeat on tanker market outlook

Frontline reports $78.9m Q1 profit, upbeat on tanker market outlook
John Fredriksen’s Frontline is upbeat on prospects for the tanker market as it reports a first quarter profit of $78.9m.

It was the first full quarter’s results since Frontline merged back with Frontline 2012. Robert Hvide Macloed, ceo of Frontline Management commented: “We are very pleased to report yet another strong quarter with net income attributable to the company of $78.9m or $0.50 per share.

“Our performance, particularly in the VLCC segment was strong, despite some market weakness in February and March.” Average time charter equivalents (TCE) for VLCCs, both spot and time charter, were $65,400 per day in Q1 2016 compared to $57,500 per day in Q4 2015. The spot TCE average per day for VLCCs in Q1 2016 was $70,200 compared to $62,700 in Q4 2015.

Guidance for average spot TCE rates per day in Q2 was a lower at $52,000 per day and Frontline said it had 83% coverage. Looking at Q2 2016 the company commented: “As we are now well into the second quarter earnings have softened, but we expect forward tanker demand to be strong.”

Macleod added: “We are also encouraged that our newbuilding programme is proceeding according to schedule.”

The company has taken delivery of five LR2 product tankers so far this year, with six more to come in 2016 and 17 newbuildings in 2017.

Frontline has secured an additional $275m in debt financing from Fredriksen’s Hemen Holding to partially cover its newbuilding programme and potential acquisitions.

“Based on cash on hand, committed and assumed debt financing we are confident that the current newbuilding program will be fully funded, as well as leaving flexibility for further growth,” said Inger Klemp cfo of Frontline Management.

Looking ahead Frontline was upbeat in particular noted increased demand from India and China. “Notably, in April, China imported 7.96m bpd of crude oil, and Chinese crude oil imports rose 11.8% over the first four months of 2016 compared to the same period in 2015. Incremental demand is being generated by Chinese teapot refineries, a trend that is expected to continue in the coming months, according to IEA forecasts.

“In addition, increasing near-term OPEC supply and declining US production supports tanker demand by increasing voyage lengths, which has the effect of reducing available supply.”

The main risk Frontline sees to the tanker market is cuts in oil production but it sees a cut in production by OPEC as unlikely.