Frontline Uses Strong Q3 and Outlook to Sweeten Offer for Euronav

Tanker shipping company Frontline reported third quarter results saying that the sector is at the beginning of a prolonged upcycle after years of weak performance. Reporting a strong return to profitability driven by a more than doubling of revenues, Frontline is using its strong third quarter results and outlook as another enticement to complete the pending merger with Euronav.

“The market is virtually firing on all cylinders, and Frontline’s efficient operations, modern fleet, and transparent business model again shows how quickly a change in market fundamentals is reflected in its cash generation and shareholder returns,” said Lars H. Barstad, Chief Executive Officer of Frontline. “We outperformed most of our competitors in terms of higher earnings and lower costs in the third quarter, and with nearly all of our vessels spot exposed, Frontline will continue to capture value as this cycle unfolds.”

Continuing the movement the company saw during the second quarter, they reported that spot rates continued to rise in all sectors. The rates for Suezmax and Aframax showed the strongest year-over-year and quarterly gains but VLCCs are also showing positive movement. Management said their fleet is well positioned and exposed to spot to benefit from these trends.

In the near term, they said they expect spot TCEs (time charter equivalent) for the full fourth quarter of 2022 to be lower than the TCEs currently contracted. This will largely be due to the impact of ballast days at the end of the fourth quarter as they expect the market trends to carry forward well into 2023.

The improving market conditions led the company to report a profit after tax of $154.4 million reversing a loss of more than $33.2 million a year ago. Revenues for the quarter were up strongly exceeding $382 million.

Frontline also looks to use the strength of the third quarter as a further enticement to complete the proposed share exchange to merge with Euronav. The company announced that it will delay its dividend into 2023 saying it intends to declare and pay the cash dividend in respect of the third quarter of 2022 only after the contemplated voluntary exchange offer by Frontline for Euronav shares has been completed. This dividend is expected to be in the amount of 80 percent of adjusted net income for the third quarter of 2022, $82.8 million. That means that shareholders after the exchange offer is completed will be receiving a total of more than $66 million in dividends.

The launch date for the tender continues to be delayed by the complexities of the merger agreement and the required steps. Frontline needs to complete a corporate move from its incorporation in Bermuda to Cyprus before the offer can begin. They now expect it will start during the first quarter of 2023, a year after they initially announced their interest in combining the two companies. 

Despite the delay in the combination, they still see strong strengths based on the market outlook. Management points to factors including a return of the global oil supply to 2019 levels along with increases in the level of exports and the volume of crude under transport. Demand they point out is also rebounding, especially in China. 

“Irrespective of near-term volatility on the demand side, the supply side remains constrained with an aging global tanker fleet and historically low orderbook,” said Barstad commenting on the outlook. “This forms the basis for our positive outlook for a prolonged strong cycle in the tanker market, and we remain committed to continue returning value to our shareholders.”

Management highlighted that Frontline has one of the lowest cost basis in the industry along with a strong fleet and some of the few orders for new vessels. Frontline recently took delivery on two new 300,000 dwt VLCCs built by Hyundai Heavy Industries, the Front Tana and Front Gaula, which followed two similar deliveries earlier in 2022. Two more VLCCs are due for delivery on this order in late 2022 and early 2023.