Frontline Ltd, the world's biggest operator of supertankers, said that third-quarter profit tumbled 76 per cent as it leased out ships for less and fuel costs surged.
Slowing: Refineries are cutting crude-oil imports because of reduced processing margins, and at the same time, shipping lines face increased fuel costs after oil prices climbed to a record, Frontline said.
Net income fell to US$24.2 million, or 32 cents a share, from US$98.8 million, or US$1.32, a year earlier, Frontline said in a statement to the Oslo stock exchange today. That missed the US$40 million, or 53-cents-a-share, median estimate of seven analysts surveyed by Bloomberg.
Refineries are cutting crude-oil imports because of reduced processing margins, Frontline said. At the same time, shipping lines face increased fuel costs after oil prices climbed to a record. Frontline said that 'substantially weaker' tanker rental rates were also attributable to a 'high availability' of ships.
'They are hardly making any money,' said Siri Evjemo Nysveen, a broker at Kaupthing Ltd in London, who until September covered Frontline as an analyst at the bank. 'This is a very negative report.'
The company's shares dropped 5.5 kroner, or 2.5 per cent, to 211 kroner as of 10:04 am yesterday in Oslo, the lowest since April 27. That pared their gain this year to 17 per cent, valuing Frontline at 15.8 billion kroner (S$4.19 billion).
Earnings from Frontline's very large crude carriers, or VLCCs, declined 39 per cent to US$36,000 a day while those from its one-million-barrel carriers declined 37.5 per cent to US$25,000 a day. Breakeven levels are US$30,000 and US$22,100 respectively.
Third-quarter sales slumped 32 per cent to US$276 million. Profit included a gain of US$4.8 million on the sale of the tanker Front Horizon. Excluding that transaction, net income was US$19.3 million, less than the US$28 million, or 38.5-cents-a-share, median estimate from 10 analysts.
Frontline said that operating performance in the last three months of the year will be 'in line' with the third quarter. Net income for the fourth quarter will be buoyed by the sale of shares of Imarex NOS ASA, an Oslo-based derivatives broker, and Dockwise Ltd, a company that hauls oil rigs.
The weakening market for leasing vessels may lead to Frontline lowering its profit outlook for 2008, Ms Nysveen said.
World oil demand will rise 2.3 per cent next year, Frontline said, citing data from the International Energy Agency, an adviser to 26 nations.
The carrying capacity of the global fleet of VLCCs will climb almost 6 per cent to about 156.5 million tons in 2008, from about 148 million tons at the end of this year, according to estimates from London-based shipbroker Galbraith's Ltd.
The Galbraith's assessment assumes that 40 new VLCCs will enter service, each with a capacity of about 310,000 tons, and 15 carriers that can each haul about 260,000 tons will be withdrawn.
Frontline said yesterday that 38 VLCCs globally will be converted to 'non-trading purposes'. Of those ships, 90 per cent will become iron-ore carriers, and 10 per cent will be turned into storage and production vessels. It did not give a timeframe.
Frontline plans a dividend of US$1.50 a share for the third quarter. Frontline has said that its target is to pay about 100 per cent of profits to shareholders in the form of dividends.
About 40 per cent of Frontline's fleet is protected from possible declines next year in the single-voyage, or spot, market through shipping contracts with oil companies that pay a fixed daily amount.
Slowing: Refineries are cutting crude-oil imports because of reduced processing margins, and at the same time, shipping lines face increased fuel costs after oil prices climbed to a record, Frontline said.
Net income fell to US$24.2 million, or 32 cents a share, from US$98.8 million, or US$1.32, a year earlier, Frontline said in a statement to the Oslo stock exchange today. That missed the US$40 million, or 53-cents-a-share, median estimate of seven analysts surveyed by Bloomberg.
Refineries are cutting crude-oil imports because of reduced processing margins, Frontline said. At the same time, shipping lines face increased fuel costs after oil prices climbed to a record. Frontline said that 'substantially weaker' tanker rental rates were also attributable to a 'high availability' of ships.
'They are hardly making any money,' said Siri Evjemo Nysveen, a broker at Kaupthing Ltd in London, who until September covered Frontline as an analyst at the bank. 'This is a very negative report.'
The company's shares dropped 5.5 kroner, or 2.5 per cent, to 211 kroner as of 10:04 am yesterday in Oslo, the lowest since April 27. That pared their gain this year to 17 per cent, valuing Frontline at 15.8 billion kroner (S$4.19 billion).
Earnings from Frontline's very large crude carriers, or VLCCs, declined 39 per cent to US$36,000 a day while those from its one-million-barrel carriers declined 37.5 per cent to US$25,000 a day. Breakeven levels are US$30,000 and US$22,100 respectively.
Third-quarter sales slumped 32 per cent to US$276 million. Profit included a gain of US$4.8 million on the sale of the tanker Front Horizon. Excluding that transaction, net income was US$19.3 million, less than the US$28 million, or 38.5-cents-a-share, median estimate from 10 analysts.
Frontline said that operating performance in the last three months of the year will be 'in line' with the third quarter. Net income for the fourth quarter will be buoyed by the sale of shares of Imarex NOS ASA, an Oslo-based derivatives broker, and Dockwise Ltd, a company that hauls oil rigs.
The weakening market for leasing vessels may lead to Frontline lowering its profit outlook for 2008, Ms Nysveen said.
World oil demand will rise 2.3 per cent next year, Frontline said, citing data from the International Energy Agency, an adviser to 26 nations.
The carrying capacity of the global fleet of VLCCs will climb almost 6 per cent to about 156.5 million tons in 2008, from about 148 million tons at the end of this year, according to estimates from London-based shipbroker Galbraith's Ltd.
The Galbraith's assessment assumes that 40 new VLCCs will enter service, each with a capacity of about 310,000 tons, and 15 carriers that can each haul about 260,000 tons will be withdrawn.
Frontline said yesterday that 38 VLCCs globally will be converted to 'non-trading purposes'. Of those ships, 90 per cent will become iron-ore carriers, and 10 per cent will be turned into storage and production vessels. It did not give a timeframe.
Frontline plans a dividend of US$1.50 a share for the third quarter. Frontline has said that its target is to pay about 100 per cent of profits to shareholders in the form of dividends.
About 40 per cent of Frontline's fleet is protected from possible declines next year in the single-voyage, or spot, market through shipping contracts with oil companies that pay a fixed daily amount.