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Fri 22 Aug 2008, 10:52 GMT

Frontline posts 69% rise in profit


Rental rates could rise as ships run slower to reduce bunker costs.

Frontline Ltd, the world's largest independent oil tanker shipping group, has posted a 69 percent rise in profit for the second quarter of 2008.

The Bermuda-based company recorded an all-time high net income of $318.4 million, or $4.25 per share, compared with net income of $187.9 million, or $2.51 per share, in the prior-year quarter. Analysts had expected the company to make $339 million.

For the six months ended June 30th 2008, Frontline achieved a record profit of $539.4 million, or $7.21 per share, compared with $346.7 million for the first half of 2007.

Record oil production from the Organization of Petroleum Exporting Countries (OPEC) helped boost profits for the oil tanker owner. OPEC pumped a record average of 32.3 million barrels of crude a day during the months of April, May and June. However, fleet supply was curtailed by Iran using its vessels as floating oil storage rather than for deliveries as demand for Iranian crude reportedly dropped.

Voyage expenses, which also include bunker costs, rose by 51 percent in the second quarter of 2008 to $139.5 million from $87.8 million the previous year. First half-year voyage expenses increased by 54 percent from $177.4 million to $273.7 million in 2008.

Frontline has predicted its financial results for the third quarter will be negatively influenced by seven scheduled dry dockings. The company said its performance will also depend on the progress of the rental rate market over the coming months.

'The board expects good results for the third quarter, however the strength of the results will be dependent on the direction of the market in the remaining part of the quarter,' Frontline said.

Commenting on the decline in the cost of chartering tankers, Frontline said it was a "temporary negative development" which had been caused by lower U.S. oil demand, fewer West African cargoes and a drop in crude imports into China before the Olympic Games.

The company said demand for tankers could rise as ships decide to run their ships more slowly to conserve fuel and reduce bunker costs, which in turn would increase the need for ships. Higher crude oil production and build-ups in oil inventories would also help push up chartering rates.

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