Frontline expects IMO 2020 strategy to yield jump in cash generation: CEO

Highlights plan to fit more than 40% of its fleet with scrubbers and equity stake in scrubber manufacturer.

Frontline vessel funnel with company logo. Image credit: Frontline

Updated on 16 Nov 2018 15:44 GMT

The CEO of Frontline Management AS, Robert Hvide Macleod, says the tanker operator expects to see a jump in cash generation as a result of the strategy it has put in place ahead of the upcoming global cap on fuel sulphur content in 2020.

Earlier this month, Frontline confirmed the order of 12 exhaust gas scrubber systems from Feen Marine Scrubbers Inc (FMSI), which was in addition to the firm's previous commitment in June to buy six scrubbers with additional fixed price options from FMSI, and its acquisition of a 20 percent ownership stake in the manufacturer.

In total, Frontline has so far committed to installing 20 exhaust gas cleaning systems, including two being fitted on the newbuild VLCCs Front Discovery and Front Defender.

As a result of the commitments, more than 40 percent of Frontline's owned fleet is to be equipped with scrubbers, with the majority of the installations scheduled to be performed before the IMO's January 2020 implementation date.

Macleod declared on Friday: "We [expect] that our positioning for IMO 2020, with our equity investment in FMSI and the planned installation of scrubbers on a number of our vessels, will result in a significant increase in cash generation should our market view unfold."

Macleod also observed: "We have a large fleet of modern and fuel-efficient vessels, with an average age of 4.1 years and our cash breakeven levels are among the most competitive in the industry."

In terms of financing, Frontline confirmed in July that it had entered into an equity distribution agreement with Morgan Stanley for the offer and sale of up to $100m of its common shares, with the net proceeds of the at-the-market (ATM) equity offering to be used to purchase scrubbers, as well as to fund growth opportunities and expenditures.

Regarding additional installations, Macleod explained earlier this month that further scrubber orders "will be considered", whilst explaining that the firm was well-placed as a shareholder of FMSI to access extra scrubber capacity.

In its unaudited financial results for the third quarter, released on Friday, Frontline posted a net income of $2.2m and a net loss adjusted for certain non-cash items of $8.4m.

"Tanker markets are beginning to rebalance following 18 months of extremely challenging conditions and we are optimistic that the market has now exited the cycle trough. Oil inventory draws, fleet growth and production cuts have been against us, but these important factors are now turning in our favor. The most important factor, oil demand, remains strong," Macleod said.