Frontline teeters on the brink as global oil tanker industry struggles to survive

City A.M. Reporter
FRONTLINE, the global oil tanker industry’s top independent player, warned it would need to restructure to survive tough times, and said the wider sector was teetering on the brink as it battled overcapacity and weak demand.

The Norwegian firm, an industry bellwether, warned yesterday that charter rates this quarter would stay well below break-even levels and it must raise equity or sell assets before the end of the year as it burns through cash, in the latest piece of bad news for the troubled sector.

“If the current weak market continues and no solution can be found, there are significant uncertainties linked to Frontline’s sustainability in the present form,” Frontline said.

Though it said bankruptcy was not an option and it aimed to repay lenders, it also warned that raising new equity would be a challenge and selling assets would be hard.

Frontline shares plunged 43 per cent yesterday and have lost over 80 per cent this year.

Nearest competitor Torm fell 7.6 per cent while rival Euronav, which last month reported a 65 per cent fall in third quarter core profit, was down 8.4 per cent.

The global tanker industry has suffered this year as the excess of vessels and weak demand have pushed charter prices well below break-even levels.

For part of this year, charter prices for the industry’s flagship vessels was less than half of break-even costs.

While earnings in the crude tanker sector have recovered in recent days from record lows, industry players expect another year of pain in 2012.

For its flagship very large crude carriers, which can each carry up to 2m barrels of oil, the company estimated break-even cost at $30,200 (£19,303) per day in November, while in the third quarter it earned just $17,000 per day.

Analysts said charter prices could temporarily rebound in the fourth quarter but the long-term recovery would continue to be slow and protracted.

Most expect Frontline to stay in the red in 2012 and some have also pencilled a loss for 2013.