Oil shipper Frontline ( FRO - Get Report) easily surpassed Wall Street forecasts with its latest quarterly earnings, but weak shipping rates continued to hang over the industry, severely shrinking the company's profit.

With demand looking to stay soft into summer, the world's largest petroleum carrier also said in its first-quarter earnings report released Thursday that it will scrap half a billion dollars worth of new-ship orders.

Frontline, based in Bermuda, reported a 65% decline in earnings, to $76.6 million, or 98 cents a share, from $221 million, or $2.95 a share a year earlier. Analysts were looking for per-share earnings of 69 cents a share.

Revenue fell 32% to $356.6 million.

Still, Frontline used the phrase "livable earnings" to describe the just-ended quarter. Things, in other words, could have been worse, if not for lower fuel prices, which reduced overhead costs, and an oil-market contango early in the quarter that increased demand for storing crude in tankers anchored offshore.

Frontline said in its press release that it expects the tanker-as-storage trend to continue into the second quarter. Six of its very-large crude carriers (or VLCCs), it added, are currently chartered out on "medium-term" storage contracts.

Fundamentally, though, pricing doesn't look to improve in the near term, and Frontline fairly said as much in its earnings release before the opening bell Thursday. The company's average daily price for its VLCCs in the first quarter was 39% less than what it charged in 2008. And, looking ahead, Frontline cited data from Clarksons, the U.K. shipping-services firm, which indicated that second-quarter spot-market rates for VLCCs have been $24,700. A year ago, the going rate was more than $130,000.

To contend with these facts, Frontline said that it canceled orders for six new ships -- four Suezmax-class tankers and two VLCCs -- which will save the company $556 million in capital expenditures. Executives are also trying to decide whether to exercise purchase options on three double-hull VLCCs, which for obvious reasons are more in demand than single-hulled oil tankers.

Frontline has been perhaps more exposed to the spot market than some of its peers, and the company has been trying to amend that problem by moving more of its business into the long-term charter model and away from the spot market. In its press release, the company said that 40% of its fleet will likely be locked into fixed-term charters in 2009 and 27% in 2010.

Trumpeting its cash position and relative balance-sheet strength, Frontline also hinted that it may be in a position to pursue acquisitions. "The increased volatility in the market is likely to create interesting opportunities for growth and consolidation," it said.

Copyright 2009 TheStreet.com Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.