John Fredriksen’s Frontline does not expect to cancel further newbuilding contracts after disclosing that orders for six newbuilding tankers at Chinese shipyards, worth more than $550m and representing one third of its order-book, had been axed.
The company’s first quarter results announcement also disclosed that acting chief executive of Frontline Management Jens Martin Jensen had been appointed to the position on a permanent basis.
Frontline said it had agreed with two shipyards on the cancellation of four suezmaxes and a pair of very large crude carriers representing a contractual cost of $556m.
The company had a total of 18 newbuildings on order with eight suezmaxes contracted at Jiangsu Rongsheng Heavy Industries, four VLCCs at Shanghai Waigaoqiao Shipbuilding, and six VLCCs on order at Zhoushan Jinhaiwan Shipyard.
Frontline did not disclose which yard had agreed to the VLCC cancellations but shipbroking sources said it was Jinhaiwan.
“The installments already paid on the cancelled newbuildings will be applied to and set off against future payments on the remaining newbuildings,” Frontline said.
In late February, Frontline said it did not expect to cancel any of its newbuilding orders.
Mr Jensen said Frontline was not paying any penalty charges for the cancellations. In the case of the suezmaxes at Rongsheng, for example, the newbuildings were running behind schedule.
Frontline had agreed to defer the delivery of the first four vessels in return for cancellation of the last four ships. The four suezmaxes are expected to be seven-to-nine months later than originally scheduled.
Mr Jensen said he did not expect any more cancellations in Frontline’s order-book although if there were more delays “you can never say never”.
Frontline’s newbuilding programme now comprises four suezmaxes and seven VLCCs worth $1.1bn.
The company’s first-quarter results disclosed that net income fell to $76.6m from $220.9m in the opening three months of last year.
Nevertheless, the result was better than expected and the company also surprised some analysts by paying a dividend of $0.25 a share for the quarter.
Frontline said the lower earnings reflected a weaker spot market.
Average daily time charter equivalents earned in the spot and period market in the first quarter by the company’s VLCCs, suezmax tankers and suezmax ore-bulk-oil carriers were $50,300, $37,900 and $44,200, respectively, compared with $54,100, $41,900 and $42,800 in the fourth quarter of 2008.
Frontline also disclosed that the time charter on the OBO carrier Front Striver, 169,204 dwt and built in1992, had been terminated “prematurely” by charterers Glorywealth Shipping.
“Frontline has raised a claim which will proceed to arbitration,” the company said.
It has now decided to drydock the vessel this month instead of September, 2009 and when this operation is completed the vessel will enter a five to seven month time charter.
Looking forward, the company forecasts that delays in delivery schedules at the yards, cancellations of newbuilding orders and scrapping of single-hull vessels due to phase out, could all improve the market’s weak fundamentals.
The start of the year in the tanker market had been better than expected, the company said. This was mainly due to reduced supply as a function of the increased storage activities.
“The persistent presence of tanker storage demand, supported by contango in the oil market, together with port strikes, cancellations and delays in the newbuilding schedule, all contributed to a levelled tonnage list and thus livable earnings,” the company said.
Frontline estimated that 55-60 VLCCs were currently employed in storage.
“In addition, we also see other ship sizes used for storage,” the company said. “This development has continued into the second quarter”
Frontline said it had so far in the second quarter achieved earnings which were better than relevant market indexes.
“A total of six of Frontline’s VLCCs are currently involved in medium-term storage projects, which together with the vessels on long-term charter creates a good protection against the current weak spot market.”
Fixed charter coverage was 40% and 27% of the fleet in 2009 and 2010,
respectively.
Frontline said it had a “good platform” for cash generation.
“The increased volatility in the market is likely to create interesting opportunities for growth and consolidation.
“Frontline should be well positioned to benefit from these opportunities.”
The company said it had the ability to adjust its exposure to the market in 2010 and 2011 through options to redeliver seven single-hull VLCCs to Ship Finance International and the single-hull suezmax tanker Front Voyager to ITCL.
In addition, Frontline said it may not exercise purchase options on three double-hull VLCCs which come to the end of their long-term leases at the end of this year.
On the remaning newbuilding orders, Frontline said it had secured $420m of long-term financing for the four newbuildings being built at Rongsheng and the first two newbuildings being built at Waigaoqiao, which had already been delivered.
Frontline has also secured long-term financing of $146.4m, representing 70% of the contractual cost, for the last two newbuildings under construction at Waigaoqiao.
“The company has, in view of its overall financial strength and particularly cash-flow from existing contracts, decided to wait with respect to establishing long term mortgage financing for the four VLCCs being built at Jinhaiwan shipyard.”
These vessels will not be delivered until the second half of 2011 and the first half of 2012.
“However the board will continuously monitor the financing market and seek solutions whereby Frontline’s dedication to a high dividend payout ratio can be kept.”
On the appointment of Mr Jensen as chief executive of Frontline Management, the company said he had shown “a high degree of professionalism” and had made a “huge contribution to reduce Frontline’s newbuilding commitment”.
The company’s first quarter results announcement also disclosed that acting chief executive of Frontline Management Jens Martin Jensen had been appointed to the position on a permanent basis.
Frontline said it had agreed with two shipyards on the cancellation of four suezmaxes and a pair of very large crude carriers representing a contractual cost of $556m.
The company had a total of 18 newbuildings on order with eight suezmaxes contracted at Jiangsu Rongsheng Heavy Industries, four VLCCs at Shanghai Waigaoqiao Shipbuilding, and six VLCCs on order at Zhoushan Jinhaiwan Shipyard.
Frontline did not disclose which yard had agreed to the VLCC cancellations but shipbroking sources said it was Jinhaiwan.
“The installments already paid on the cancelled newbuildings will be applied to and set off against future payments on the remaining newbuildings,” Frontline said.
In late February, Frontline said it did not expect to cancel any of its newbuilding orders.
Mr Jensen said Frontline was not paying any penalty charges for the cancellations. In the case of the suezmaxes at Rongsheng, for example, the newbuildings were running behind schedule.
Frontline had agreed to defer the delivery of the first four vessels in return for cancellation of the last four ships. The four suezmaxes are expected to be seven-to-nine months later than originally scheduled.
Mr Jensen said he did not expect any more cancellations in Frontline’s order-book although if there were more delays “you can never say never”.
Frontline’s newbuilding programme now comprises four suezmaxes and seven VLCCs worth $1.1bn.
The company’s first-quarter results disclosed that net income fell to $76.6m from $220.9m in the opening three months of last year.
Nevertheless, the result was better than expected and the company also surprised some analysts by paying a dividend of $0.25 a share for the quarter.
Frontline said the lower earnings reflected a weaker spot market.
Average daily time charter equivalents earned in the spot and period market in the first quarter by the company’s VLCCs, suezmax tankers and suezmax ore-bulk-oil carriers were $50,300, $37,900 and $44,200, respectively, compared with $54,100, $41,900 and $42,800 in the fourth quarter of 2008.
Frontline also disclosed that the time charter on the OBO carrier Front Striver, 169,204 dwt and built in1992, had been terminated “prematurely” by charterers Glorywealth Shipping.
“Frontline has raised a claim which will proceed to arbitration,” the company said.
It has now decided to drydock the vessel this month instead of September, 2009 and when this operation is completed the vessel will enter a five to seven month time charter.
Looking forward, the company forecasts that delays in delivery schedules at the yards, cancellations of newbuilding orders and scrapping of single-hull vessels due to phase out, could all improve the market’s weak fundamentals.
The start of the year in the tanker market had been better than expected, the company said. This was mainly due to reduced supply as a function of the increased storage activities.
“The persistent presence of tanker storage demand, supported by contango in the oil market, together with port strikes, cancellations and delays in the newbuilding schedule, all contributed to a levelled tonnage list and thus livable earnings,” the company said.
Frontline estimated that 55-60 VLCCs were currently employed in storage.
“In addition, we also see other ship sizes used for storage,” the company said. “This development has continued into the second quarter”
Frontline said it had so far in the second quarter achieved earnings which were better than relevant market indexes.
“A total of six of Frontline’s VLCCs are currently involved in medium-term storage projects, which together with the vessels on long-term charter creates a good protection against the current weak spot market.”
Fixed charter coverage was 40% and 27% of the fleet in 2009 and 2010,
respectively.
Frontline said it had a “good platform” for cash generation.
“The increased volatility in the market is likely to create interesting opportunities for growth and consolidation.
“Frontline should be well positioned to benefit from these opportunities.”
The company said it had the ability to adjust its exposure to the market in 2010 and 2011 through options to redeliver seven single-hull VLCCs to Ship Finance International and the single-hull suezmax tanker Front Voyager to ITCL.
In addition, Frontline said it may not exercise purchase options on three double-hull VLCCs which come to the end of their long-term leases at the end of this year.
On the remaning newbuilding orders, Frontline said it had secured $420m of long-term financing for the four newbuildings being built at Rongsheng and the first two newbuildings being built at Waigaoqiao, which had already been delivered.
Frontline has also secured long-term financing of $146.4m, representing 70% of the contractual cost, for the last two newbuildings under construction at Waigaoqiao.
“The company has, in view of its overall financial strength and particularly cash-flow from existing contracts, decided to wait with respect to establishing long term mortgage financing for the four VLCCs being built at Jinhaiwan shipyard.”
These vessels will not be delivered until the second half of 2011 and the first half of 2012.
“However the board will continuously monitor the financing market and seek solutions whereby Frontline’s dedication to a high dividend payout ratio can be kept.”
On the appointment of Mr Jensen as chief executive of Frontline Management, the company said he had shown “a high degree of professionalism” and had made a “huge contribution to reduce Frontline’s newbuilding commitment”.