Frontline Falls in Oslo After Profits Misses Analyst Estimates

By Alaric Nightingale

Aug. 21 (Bloomberg) -- Frontline Ltd., the world's largest owner of supertankers, fell the most in six weeks in Oslo trading after second-quarter profit missed analyst estimates and it didn't say when a slump in freight costs will end.

Frontline dropped as much as 6.2 percent after saying net income rose 69 percent to $318.4 million. The company was expected to make $339 million, according to the median estimate of nine analysts surveyed by Bloomberg News.

A decline in rental rates since July is a ``temporary negative development'' caused by China slowing crude imports before the Olympic Games, reduced oil demand in the U.S. and fewer West African cargoes, Frontline said. The market may strengthen as owners sail more slowly, world crude production increases and refineries produce more fuel, it said.

``Some people were hoping they would have very specific news on when the market is turning,'' Ole Stenhagen, an Oslo- based analyst at SEB Enskilda who has a ``sell'' recommendation on the shares, said by telephone. ``I don't feel they gave the place, time or numbers.''

Frontline declined 19 Norwegian kroner, or 6.1 percent, to 294.5 kroner as of 11:27 a.m. in Oslo. Earlier it traded as low as 294 kroner, and a close at that price would be the biggest one0-day drop since Feb. 22. The stock has risen 14 percent in 2008, giving Frontline a market value of 22 billion kroner ($4.1 billion).

Profit was buoyed by record oil production from the Organization of Petroleum Exporting Countries. Fleet supply was curtailed by Iran using its fleet as floating oil storage rather than for deliveries, Frontline said.

$84,300 a Day

Daily rental income after fuel and port costs from company's very large crude carriers, or VLCCs, gained 68 percent to $84,300 a day. Suezmax tankers that have about half the shipping capacity of a VLCC, saw profits advance 87 percent to $61,100 a day.

By contrast, Euronav NV, Belgium's only publicly traded oil-tanker owner, made $97,950 a day on its VLCCs and $44,800 a day from its suezmaxes in the second quarter.

Since climbing to $148,122 a day on July 1, rental returns from leasing VLCCs have plunged to $13,547 a day, according to data from the London-based Baltic Exchange, whose daily price assessments are used to settle shipping contracts and derivatives contracts.

That's less than the $31,400 a day that Frontline said today its VLCCs need to break even. Suezmaxes returns have slipped to $32,022 a day compared with $24,800 a day that Frontline requires for profit.

OPEC pumped a record average of 32.3 million barrels of crude a day in April, May and June. Iran deployed its fleet as floating storage, after demand for some of its crude fell.

Deducting gains of $126.7 million from the sale of assets would imply Frontline made a profit of $191.6 million. That would beat the $188.25 median estimate of 10 analysts surveyed by Bloomberg.

To contact the reporter on this story: Alaric Nightingale in London at Anightingal1@bloomberg.net