Forbes.com



Viking Raider


With a tanker fleet bigger than anything Aristotle Onassis had, John Fredriksen is turning the tables on Big Oil.

The Front Sun glides slowly to a stop at an off-loading station on the banks of the Sabine River near Houston. Her 25,320-horsepower engine falls silent as three tugboats strain to maneuver her into position. In her 4-acre hold slosh 520,000 barrels of sweet Nigerian crude worth $13 million. For the three-week voyage from the Nigerian oil terminal of Forcados, the Front Sun will collect $1.3 million, almost half of it profit.


Much of that money will flow into the pockets of Norwegian John Fredriksen, 56, who has come from nowhere to control the largest fleet of oil tankers in the world, just as tanker rates near 30-year highs. Revenues of his company almost doubled to $697 million last year. Net income was $314 million, a 45% profit margin.

By the Numbers
With world oil consumption
on the rise, John Fredriksen
controls a vital lifeline.
290 million Carrying capacity
of worldwide tanker fleet
in deadweight tons.
14 million Frontline's carrying
capacity in deadweight tons.
8.4 million Daily gasoline
consumption in the U.S.,
in barrels.
7 cents Average cost of
shipping per gallon
of gasoline in the U.S.
Sources: Poten & Partners; Frontline.
A murky character notorious for rowdy drinking binges and playing rough with takeover targets, Fredriksen, with his 72 modern crude-oil tankers, has developed a stranglehold on the critical shipping routes that link the oil-thirsty U.S., China and Europe with the Middle East.

"He's a modern-day Onassis. The tanker king," marvels James Winchester, a longtime shipping analyst at Lazard Frères. "He landed squarely in the sweet spot of the tanker cycle, with the largest fleet of ships."

Intensely secretive, Fredriksen never let on until 1986 that he even owned ships, claiming that he was simply the front man for unnamed investors. He had good reason for the subterfuge. His early dealings involved running crude to and from hot spots that included Lebanon, Iran and Syria, often on behalf of shadowy oil traders such as Marc Rich. "He was the lifeline to the Ayatollah," claims Odd-Harald Haugue, a Norwegian writer who co-authored a biography of Fredriksen.

After being jailed briefly in 1987 in his native Norway on since-dismissed charges that his tankers burned some of their crude cargo as fuel, he decamped to the tax haven of Cyprus, where he runs a growing empire of tankers, drilling rigs, natural gas ships and oilfields valued at more than $1 billion.

But now the reclusive shipper is coming out of the shadows. Backed by capital from U.S. investors such as Fidelity Investments and hedge fund Viking Global, Fredriksen has used his Oslo-based, Nasdaq-listed Frontline Ltd. (nasdaq: FRONY - news - people) to stage a series of takeover raids that have consolidated the crude tanker business. In a bid for even more visibility and investors, Fredriksen has applied to list Frontline's shares on the Big Board. Fredriksen's 46% stake in Frontline is worth $600 million.

"John put his money where his mouth is. He put his entire fortune at risk," says Morten Arntzen, former head of transportation finance at since-renamed J.P. Morgan Chase.

It's a long way in a short time for the son of a working-class welder. Six years ago Fredriksen was just one of several obscure private tanker owners still hurting from the cyclical overbuilding of the Seventies. Oil companies exploited the oversupply by playing small ship owners against each other to get rates that barely covered operating costs.

But Fredriksen knew that many of the aging clunkers built in the Seventies would soon start wearing out. "The world has to get crude somewhere, and OPEC is the place. We saw that," says Fredriksen from his penthouse office overlooking the bustling Oslo harbor.

But rather than just commissioning new tankers, Fredriksen went on an acquisition binge. His first big hit was the 1996 takeover of a Swedish shipping outfit called Frontline, which he got for $55 million, financed with cash.

Fredriksen sold off the company's bulk cargo ships, leaving him with just the tankers. Analysts figure Frontline will earn $420 million this year, 45% more than Fredriksen's entire five-year investment in the company of $290 million.

Fredriksen went shopping for more tankers. In 1997 he scooped up London & Overseas Freighters for $132 million, and then launched a two-year hostile takeover battle for another Swedish shipping company, ICB Shipping, run by a courtly Swede named Clarence Dybeck.

Dybeck was the antithesis of the hardball Norwegian raider. Although Dybeck found a white knight in the form of Greek shipowner John Angelicoussis to take a controlling stake in his firm, Fredriksen convinced another shareholder to sell out, and eventually forced Dybeck into his arms.

Introducing American tactics into the battle, Fredriksen ran ads in the Swedish press and sent threatening letters to the board.

"He's a tough cookie, but he knows the shipping business," sighs Dybeck. As is his custom, Fredriksen canned nearly all of ICB's employees.

More recently, Fredriksen scooped up the busted junk bonds of Vancouver-based Golden Ocean, which went bankrupt after the 1997 Asian downturn. Paying bondholders as little as 17 cents on the dollar, Fredriksen took control of 17 tankers worth $1 billion for just $65 million in equity.

Then Fredriksen had a stroke of luck. An aging tanker owned by another firm sank off the coast of Brittany in 1999, spilling a reported 70,000 barrels of fuel oil. Oil companies panicked and stopped chartering the older ships. Since then rates have more than tripled for the more costly double-hulled, environmentally safer tankers that dominate Fredriksen's fleet. If a proposed U.N. tanker initiative is adopted, a third of the world's tanker fleet will have to be scrapped by 2006, according to ship brokers Poten & Partners.

With $1.3 billion in debt, Fredriksen is vulnerable if spot prices suddenly turn. Matthew McCleery, president of Marine Money, a trade magazine published in Stamford, Conn., estimates Fredriksen controls 23% of the modern supertanker spot market (ships over 300,000 tons, loaded) and another 25% of the spot business for Western Hemisphere Suezmax tankers, a slightly smaller class of vessels. But his power also comes from his influence in two charter pools, which consist of several fleets of newer tankers, combined for the purpose of negotiating clout.

For the past three decades ship- owners willingly gave brokers information about the availability and position of their ships. But the two Fredriksen-dominated tanker pools now can afford to be coy about their fleets' whereabouts, making it tougher for oil companies to drive a bargain. TheFredriksen supertanker pool also threatens to blacklist brokers who cut it out of large contracts.

"The oil companies never paid for transportation. They created the problem," sneers Tor Olav Troim, vice chairman of Frontline.

These days Fredriksen claims to have toned down his extracurricular antics, though his legend lives on. Boris Nachamkin, Fredriksen's former banker at Bankers Trust, recalls a visit to an Athens nightclub with Fredriksen in the early Nineties. Fredriksen splurged on champagne for the entire bar, then disappeared at 2 a.m., sticking his bankers with the $15,000 tab. Fredriksen denies the incident. "Who knows whether he got a little kick out of doing us out of $15,000? Iwouldn't be surprised," chuckles Nachamkin, who says he bears no grudge. "We made a lot of money on him."