Oil prices are persistently hanging around $100 a barrel, so it must be good days to own an oil tanker, right? Not so fast. While oil demand has indeed been strong throughout most of the world, tanker operators continue to take delivery of more new capacity and the spot rates for crude oil tankers have plunged as a result.
That leaves Frontline (NYSE:FRO) struggling and ill-equipped to do much more than dog-paddle its way through current troubles. In point of fact, Frontline is one of the better-run tanker companies out there (albeit very focused on crude oil transport), and yet controlling shareholder John Fredriksen is not really looking for a better shipping environment until 2012.
A Tough Quarter as Rates Weaken
While Frontline reported that total revenue fell 29% from the year-ago level, net revenue was actually down about 40% (flat sequentially) as tanker rates plunged 45% on an all-in basis. While shipping rates are weak, there is no such weakness in operating costs. Consequently, Frontline saw adjusted EBITDA essentially cut in half from the year ago level while adjusted operating income fell almost 77%.
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