John Fredriksen-led Frontline has announced a major revision to its long-term charter agreements and has reported stronger than expected quarterly results.
Long-term charters for 17 tankers owned by related-party Ship Finance International (SFI) will be amended as of 1 July. Base rates for VLCCs will be reduced to USD20,000/day and for Suezmaxes to USD15,000/day. The profit-sharing split, previously 75% Frontline/25% SFI, will be amended to 50-50. Frontline will give USD168 million in stock to SFI, equivalent to 27.7% of Frontline’s shares.
The revised charters have an average remaining period of 7.7 years. “The new structure will reduce Frontline’s cash break-even rates significantly and ensure a more sustainable long-term structure,” said Frontline Management CEO Robert Hvide Macleod, who called the agreement “a major milestone for the company”.
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From SFI’s perspective, the deal offers more upside exposure to a strong rate environment. According to Ship Finance Management CEO Ole Hjertaker, “We are currently enjoying a very strong tanker market and the new and higher profit-share arrangement is likely to generate higher net cash flows in the near term.”
Frontline reported net income of USD31.2 million for 1Q15 versus a net loss of USD15.2 million in 1Q14. The company’s spot-traded VLCCs earned USD52,200/day in the latest quarter, up 61% from USD32,500/day in the same period last year. Frontline’s spot-traded Suezmaxes earned USD35,000/day in 1Q15, up 26% versus USD27,700/day in 1Q14.