Tanker company Frontline has surpassed fourth quarter results expectations. The outlook for the years to come is positive as a market rebalancing due to increased scrapping is expected.
Frontline generated net income of $ 18.3 million in the fourth quarter compared with $ 5.5 mil[ds_preview]lion in the previous quarter. Net income adjusted for certain non-cash items was $ 34.5 million for 4Q. In the year ended December 31, 2016, the company generated net income of $ 117.0 million compared with $ 154.6 million in 2015. Adjusted net income was $ 188.9 million for 2016.
Robert Hvide Macleod, Chief Executive Officer of Frontline Management: »As DHT‘s largest shareholder we are surprised that DHT‘s Board has declined our repeated attempts to discuss a business combination that we believe is clearly in the best interest of all shareholders.«
Frontline, together with its affiliates, acquired approximately 16.4% of the outstanding common stock in DHT Holdings. In January, Frontline approached DHT with a proposal for a possible business combination whereby the Company would acquire DHT in a stock-for-stock transaction, which was declined by DHT‘s Board. In February, Frontline presented an improved and final offer of 0.80 Frontline shares per DHT share, which was declined by DHT‘s Board.
Inger M. Klemp, Chief Financial Officer of Frontline Management AS: »Frontline‘s newbuilding program as of December 31, 2016 is fully financed. The Company has already initiated dialogues with banks to finance our two newly acquired resale VLCCs and are confident that we will be able to secure financing at attractive terms.«
In October 2016, the company entered into an agreement with STX Offshore & Shipbuilding to terminate the contracts for four VLCC newbuildings. Frontline recorded a loss of $ 2.7 million relating to the contract terminations in the third quarter. As of December 31, 2016, the Company’s newbuilding program comprised three VLCCs, six Suezmax tankers and seven LR2 tankers. All newbuildings are expected to be delivered in 2017. In January 2017, the Company took delivery of the Suezmax newbuilding »Front Classic« and the LR2 newbuildings »Front Antares« and »Front Vega«. In February 2017, the Company took delivery of the VLCC newbuilding Front Duchess. In February 2017, the Company acquired two VLCC resales under construction at DSME at a net purchase price of $ 77.5 million each. The vessels are due for delivery in September and October 2017.
Frontline expects rebalancing thanks to ballast water convention
While capacity additions to the global tanker fleet are expected to put pressure on rates over the next twelve months, Frontline maintains a positive long term outlook on the tanker market. The company believes that the market will begin to tighten in 2018 as the delivery of newbuilding vessels abates and vessels are retired from the global fleet. »We expect vessel scrapping to begin to pick up as we progress through 2017, particularly in light of the implementation of the ballast water treatment convention la ter this year.«
Frontline also sees demand for crude oil increase. Should the OPEC and non – OPEC production caps remain in force, the tanker company expects trade routes to continue to trend towards long haul voyages from the Atlantic basin to Asia.
Regarding the sharp decline in asset values during 2016, Frontline believes there are several attractive growth opportunities in today’s markets including buying vessels on the water, newbuild/resales as well as buying shares and companies.
