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Ship Finance Worldwide (SFL 4.92%)
Q1 2022 Earnings Name
Could 12, 2022, 10:00 a.m. ET


  • Ready Remarks
  • Questions and Solutions
  • Name Individuals

Ready Remarks:


Good day, and thanks for standing by. Welcome to the Q1 2022 SFL Company earnings convention name. [Operator instructions] Please be suggested that as we speak’s convention is being recorded. [Operator instructions] I’d now like handy over the convention over to your speaker as we speak, Mr.

Hjertaker. Please go forward, sir.

Ole Hjertaker — Chief Govt Officer

Thanks, and welcome all to SFL’s first quarter convention name. I’ll begin the decision by briefly going by means of the highlights of the quarter. And following that, our CFO, Aksel Olesen, will take us by means of the financials, and the decision can be concluded by opening up for questions. Our chief working officer, Trym Sjolie, may even be current for the Q&A session.

Earlier than we start our presentation, I want to word that this convention name will comprise forward-looking statements throughout the that means of the U.S. Personal Securities Litigation Reform Act of 1995. Phrases akin to expects, anticipates, intends, estimates, or related expressions are supposed to establish these forward-looking statements. Ahead-looking statements usually are not ensures of future efficiency.

These statements are primarily based on our present plans and expectations and are inherently topic to dangers and uncertainties that would trigger future actions and outcomes of operations to be materially totally different from these set forth within the forward-looking statements. Necessary elements that would trigger precise outcomes to vary embody, however usually are not restricted to, situations within the transport, offshore, and credit score markets. It is best to, due to this fact, not place undue reliance on these forward-looking statements. Please discuss with our filings with the Securities and Trade Fee for extra detailed discussions on our dangers and uncertainties, which can have a direct bearing on our working outcomes and our monetary situation.

The introduced dividend of $0.22 per share is a rise of 10% over final quarter’s dividend and represents a dividend yield of round 8.8% primarily based on closing worth yesterday. That is our 73rd quarterly dividend and through the years, we’ve paid greater than $28 per share in dividends or practically $2.5 billion in complete. And we’ve an rising fixed-rate constitution backlog supporting continued dividend capability going ahead. The entire constitution revenues have been $166 million within the quarter with the overwhelming majority from vessels on long-term charters and solely 20% from vessels employed on short-term charters and within the spot market.

The EBITDA equal money stream within the quarter was roughly $119 million. And over the past 12 months, the EBITDA equal has been roughly $455 million. And the web revenue got here in at round $47 million within the quarter or $0.37 per share. There was additionally a optimistic mark-to-market on rate of interest swaps and fairness investments however solely a small portion of the entire financial impact of the swaps stream by means of our revenue and loss assertion.

Most is outlined as hedging accounting and the guide impact would have been round $10 million larger in any other case. Within the quarter, there have been round $1 million larger working price within the quarter as a consequence of further crew rotation prices linked to COVID restrictions in some areas and elevated airfare and in addition larger authorized bills in reference to the Seadrill chapter and redelivery of the rigs. We count on this to return down when journey and restrictions ease and the rigs are delivered to us later this yr. Our fastened fee backlog has elevated considerably and stands at roughly $3.6 billion from owned and managed vessels after latest acquisitions and charters, which supplies continued money stream visibility going ahead.

The backlog determine excludes revenues from the vessels traded within the short-term market and in addition excludes future revenue share optionality. In March, we introduced a $540 million added backlog on our six massive 14,000 TEU container vessels. The vessels have been completed their preliminary 10-year charters to Evergreen in 2023 and ’24, and we’ve now added one other 5 years to Hapag-Lloyd, taking the constitution cowl to 2029. Hapag-Lloyd is the world’s fifth largest container line, and the transaction highlights the worth and significance of our sturdy operational platform and our time constitution technique allow us to construct sturdy buyer relationships with industry-leading counterparties.

In reference to Seadrill’s Chapter 11 course of, we agreed to take over the constitution contract on West Linus with impact when all authorities approvals are in place. Based mostly on present constitution fee, round $500 million was added to the backlog. However given the market adjusted constitution fee, this might improve if the drilling market strengthens. West Hercules would be the redelivered when the present drilling project for Equinor and Canada is finalized towards the top of the yr.

Thereafter, that rig can be managed by Odfjell, a market-leading operator of harsh surroundings drilling rigs, and we’ll drop the West prefix on the rig names. The sale of the final two VLCCs on constitution to Frontline marks the top of an space and demonstrates the transformation SFL has gone by means of. Initially, Frontline was our solely buyer and the fleet consisted of practically 50 crude oil tankers. The 2 remaining vessels have been 18 years outdated and we bought them after the quarter finish for about $70 million, together with a compensation from Frontline.

We count on to guide a achieve of roughly $2 million in reference to the sale. And subsequent to quarter finish, we’ve additionally delivered the 19-year-old 1,700 TEU container vessel to MSC Alice, which has been on the next buy settlement to MSC for the final 5 years. This transaction illustrates the worth of getting optionality the place the ultimate fee was supposed to be marginal because the vessel has successfully been paid down over the 5 years, however we negotiated a revenue share settlement into the deal on the time. And whereas we, in fact, hope that there could be some worth in that possibility, we did not count on it to be greater than $1 million or $2 million.

Assuming 5 years ahead to as we speak, the very sturdy container market at the moment meant that we ended up with a revenue cut up of practically $12 million as an alternative. The vessel was debt-free and SFL expects to document a achieve of roughly $12 million within the second quarter. Excluding the drilling rigs, the backlog from owned and managed transport belongings have been $3.6 billion on the finish of the quarter, up from $2.8 billion within the earlier quarter. Over time, we’ve modified each fleet composition and construction, and we now have 71 maritime belongings in our portfolio after late transactions.

Over time, we’ve gone from a single asset class chartered to at least one single buyer to a diversified fleet and a number of counterparties. And over time, the combination of the belongings and constitution backlog has assorted from 100% tankers to almost 60% offshore 10 years in the past to container vessels now being the most important phase with practically 60% of the backlog and tankers solely at round 10%. A lot of the vessels are on long-term charters, and within the quarter, solely 12% of rent was from vessels within the spot market. Additionally, we’ve practically 90% of constitution income from our transport belongings on time constitution contracts and solely 11% on bareboat or dry lease preparations.

Now we have additionally had important contribution to money stream from revenue share over time, each regarding constitution charges and gas financial savings. The mixture revenue share was $22 million final 12 months and $4.5 million within the first quarter. We do not need a set combine within the portfolio, focuses on evaluating deal alternatives throughout the segments and attempt to do the fitting transactions from a risk-reward perspective. Over time, we consider it will stability itself out, however we attempt to watch out and conservative in our investments with a deal with expertise and resolution over time to extra fuel-efficient vessels.

SFL owns two harsh surroundings drilling rigs, the West Hercules and West Linus, which have been chartered to subsidiaries of Seadrill since new. Now we have now been by means of two chapter stage rounds in Seadrill. And whereas we’ve been paid constitution rent in the course of the processes, we’ve determined to enter a chartering relationship with Seadrill. The long-term drilling contract for West Linus with ConocoPhillips can be assigned to us as quickly as buyer Norwegian regulatory approvals have been obtained, at the moment anticipated to be accomplished within the third quarter.

Thereafter, the rig can be managed by Know-how, a number one provider of our offshore operations who’s already performing in depth drilling companies for ConocoPhillips on the fastened installations. The West Linus has been drilling for ConocoPhillips on the Larger Ekofisk space because it was new in 2014, and its contract runs till the top of 2028 at market index constitution fee. It was ordered towards the contract and has a number of options which makes it notably efficient on the Ekofisk area on the Norwegian Continental shelf. The Ekofisk area was the primary oil discovery in Norway and has produced greater than 6 billion barrels of oil equal since its start-up in 1971.

Lately, the manufacturing licenses within the Larger Ekofisk space was prolonged from 2028 to 2048, and the license companions has just lately introduced new important investments in future productions given the scale and proximity to European markets. The tough surroundings semisubmersible rig, West Hercules, will stay on constitution to Seadrill, whereas it finalizes a drilling contract with Norwegian oil main, Equinor, in Canada. That is anticipated by means of the fourth quarter this yr, and thereafter, the rig can be redelivered to SFL in Norway. It is going to then bear a scheduled five-year particular survey estimated to take round three months earlier than the rig is able to work once more.

Woodfield Drilling, a market-leading harsh surroundings drilling rig operator will carry out industrial and operational administration of the rig after redelivery from Seadrill. The rig is just — is considered one of solely a handful of rigs totally outfitted to drill within the harshest arctic surroundings. And market analysts are optimistic to market prospects after the sturdy oil worth improvement and the conclusion that there was a basic underinvestment within the phase for a variety of years. We comply with the market intently, in fact, and can announce future employment in the end.

The power of our counterparties and diversification is essential while you assess our portfolio and high quality over contracted backlog. And the listing speaks for itself with market-leading operators like Maersk, MSC, ConocoPhillips, P66 and Volkswagen to call just a few. Comparatively few of our clients are intermediaries the place we’ve much less visibility on the usage of the belongings and high quality of operations. Strategically, this additionally offers us entry to extra deal stream alternatives such because the repeat companies with Maersk, MSC, Evergreen and Trafigura, for instance.

Our technique has due to this fact been to take care of a powerful technical and industrial working platform in cooperation with our sister firms within the Seatankers Group. This provides us the flexibility to supply a wider vary of companies to our clients from structured financing to full-service time charters. And with full management over vessel upkeep and efficiency, together with power effectivity and emission minimizing efforts, we will affect enhancements to our vessels by means of the lifetime of the belongings. and never solely be passively proudly owning vessels employed on bareboat the place the shopper could not all the time have an incentive to make such enhancements.

As well as, we will retain extra of the residual worth within the belongings once we constitution out on a time constitution foundation. And within the present surroundings with rising uncooked materials prices and inflation driving substitute prices for vessels, this worth is for the good thing about SFL and our stakeholders. For bareboat offers, this mass worth is often retained by the charterers by means of fastened worth buy choices. And with that, I’ll give the phrase over to our CFO, Aksel Olesen, who will take us by means of the monetary highlights of the quarter.

Aksel Olesen — Chief Monetary Officer

Thanks, Mr. Hjertaker. On this slide, they’ve proven a professional forma illustration of money flows for the primary quarter. Please word that that is on a suggestion to evaluate the corporate’s efficiency and isn’t in accordance with U.S.

GAAP and in addition internet of extraordinary and noncash gadgets. The corporate generated gross constitution rent of roughly $166 million within the first quarter, together with $4.5 million of revenue share with roughly 85% of the income coming from a hard and fast cost fee backlog, which at the moment stands at $3.6 billion, offering us with sturdy visibility on money stream going ahead. Within the first quarter, the road fleet generated gross constitution rent of roughly $88 million, together with roughly $4.4 million in revenue share contribution associated to gas financial savings on a few of our massive container vessels. Following the corporate’s latest acquisitions and constitution extensions, West Linus fleet backlog elevated roughly $2.5 billion with a mean remaining constitution time period of roughly 5 years or seven and a half years if weighted by constitution rent.

A small container vessel, which has been on the next buy association over the last 5 years, was delivered to the client subsequent to quarter finish towards a complete buy worth of $13 million. SFL expects to document a achieve of roughly $12 million within the second quarter, the vessel was debt-free. Within the first quarter, SFL had a fleet of 16 crude oil, product and chemical tankers, with the bulk employed on long-term charters. Our tanker fleet generated roughly $30 million in gross constitution rent in the course of the quarter, in comparison with $17.5 million within the earlier quarter as further Trafigura vessels be part of the fleet.

The online constitution rent from the corporate’s two Suezmax tankers employed in a short-term market was roughly $2.3 million, in comparison with $3.1 million within the earlier quarter. Subsequent to quarter finish, SFL bought the 2004 and Frost Power, and concurrently agreed to terminate the vessel constitution preparations with a subsidiary of Frontline. The sale worth was roughly $70 million, together with a compensation from Frontline for the early termination of the charters. SFL count on to document a achieve of roughly $2 million within the second quarter because of the sale.

In the course of the quarter, the corporate had a fleet of 15 dry bulk vessels, through which 10 are employed on long-term charters and the opposite 5 are buying and selling within the short-term market. The dry bulk fleet generated roughly $26 million gross constitution larger within the first quarter, together with roughly $100,000 in revenue share contribution from our Capesize vessels on constitution to Golden Norton. The 5 vessels buying and selling and spot or short-term market generated roughly $8 million in internet constitution rent, in comparison with roughly $8.6 million within the earlier quarter. SFL owns two drilling rigs, which have been charted out subsidiaries of Seadrill on variable phrases.

Within the first quarter, the corporate obtained constitution rent of roughly $21 million from the rigs, together with roughly $7 million in lumps on funds regarding termination of the West Linus constitution. This formalizes an adjusted EBITDA of roughly $119 million for the primary quarter, in comparison with $121 million within the fourth quarter. We then transfer on to the revenue and loss assertion as reported on the U.S. GAAP.

As we’ve described in earlier earnings calls, our accounting statements are totally different from these of a standard transport firm. As our enterprise technique focuses on long-term constitution contracts, a part of our actions are categorised as capital leasing. In consequence, a portion of our constitution revenues are excluded from U.S. GAAP working revenues and the gross sales booked as revenues categorised as reimbursement of funding in finance leases and vessel loans, ends in associates and long-term investments and curiosity revenue from associates.

So first quarter report complete working income in keeping with U.S. GAAP of roughly $152 million, which is lower than roughly $166 million of constitution rent really obtained for causes simply talked about. In the course of the quarter, the corporate recorded revenue share revenue of roughly $100,000 from our each vessels, a further roughly $4.4 million from gas saving preparations on a few of our massive container belongings. The working bills of our fleet is up in comparison with the earlier quarter as a consequence of a mix of recent vessels coming into our fleet and bills associated to COVID-19 associated logistical challenges.

As well as, we additionally noticed improve in depreciation as a consequence of new additions to our fleet in the course of the quarter. Moreover, the corporate recorded a $7.3 million achieve associated to optimistic mark-to-market results associated to rate of interest swaps and $2.5 million achieve associated to optimistic mark-to-market results associated to investments. So general, and in keeping with U.S. GAAP, the corporate reported a internet revenue of roughly $47 million or $0.37 per share.

Transferring on to the stability sheet. At quarter finish, SFL had roughly $149 million of money and money equivalents. And with the sale of three vessels subsequent to quarter finish, our money place elevated by a further roughly $48 million. Moreover, the corporate had marketable securities of roughly $24 million primarily based on market costs on the finish of the quarter.

Following the sale of a small container as subsequent to quarter finish, the corporate had 4 debt-free vessels with a mixed constitution a worth of roughly $73.5 million primarily based on common dealer operators. The roughly $247 million of remaining capex on 4 automobile carriers below building is predicted to be financed by senior debt much like SFL’s different belongings to be long-term charters. So primarily based on the Q1 numbers, the corporate a guide fairness ratio of roughly 28%. Then to summarize, board has declared a money dividend of $0.22 per share for the quarter, a rise of roughly 10% in comparison with the earlier quarter.

This represents a dividend yield of roughly 8.8% primarily based on the closing share worth yesterday. That is the 73rd consecutive quarterly dividend. And since inception of the corporate in 2004, greater than $28 per share or $2.5 billion in combination has been returned to shareholders by means of dividends. Final yr, SFL efficiently dedicated greater than $1 billion towards accretive funding.

And to this point, in 2022, we added greater than $1 billion to backlog which now stands at $3.6 billion, offering sturdy visibility on future money stream, debt service and distribution capability. With a powerful stability sheet and roughly $200 million in money, SFL may be very well-positioned to execute on new accretive investments. As well as, we’ve seen a powerful restoration within the drilling market for the reason that starting of the yr. And our two harsh surroundings drilling rigs are well-positioned to learn from the elevated exercise stage within the sector.

One rig is employed on a long-term market adjusted constitution fee, whereas the opposite rig is accessible for brand spanking new contracts in 2023. And with that, I give the phrase again to the operator, who will open the road for questions.

Questions & Solutions:


[Operator instructions] And the primary query comes from Greg Lewis from BTIG. Please go forward, sir.

Greg Lewis — BTIG — Analyst

Hey, sir. Thanks, and good afternoon, and thanks for taking my query. I did need to speak somewhat bit in regards to the fleet administration and the way we needs to be enthusiastic about further potential asset gross sales. I consider the smaller like a intermediate container ship, there was a purchase order possibility on that, which was exercised.

As we glance out over the subsequent — and proper me if that is not proper, as we glance out over the subsequent handful of quarters, is there any approach to consider different potential vessels that will have these choices hooked up, simply given the power within the general market that in all probability numerous these will get exercised if there are any.

Ole Hjertaker — Chief Govt Officer

Sure. Greg, that is Ole. Sure, we’ve some, name it, older, I’d say, type of smaller midsized containerships. One was simply chartered for one more three years with Maersk at a reasonably excessive fee, reflecting the present market.

Now we have another that may come open and can be accessible for chartering once more in just a few months. No choices regarding both of these two belongings. We even have a few older 4,100 TEU vessels and 5 5,800 TEUs. These are on and have been on long-term constitution to MSC which — they usually have been successfully structured, you’ll be able to name it as larger purchase-type offers.

And due to this fact, we do not have not actually obtained that, name it, market publicity. I feel I’d be very, very shocked if these choices weren’t exercised, however that was additionally the design on the time. However when you take a look at the belongings the place we’ve extra capital in danger, you’ll be able to name it, that is predominantly on the bigger ship — container ships from 9,000 and up, they usually’re all constructed from 2013 onwards, which signifies that they’re all the brand new era electronically managed engines and designed after the monetary disaster, which signifies that they’ve a configuration that we consider can be long-term viable in that market. There, on these vessels, we’ve the primary coming off for rechartering in — probably in ’24, however there are extension choices at related ranges.

And — and primarily based on the place we see the market and the place we see substitute prices for belongings and even when you regulate for a brand new vessel being marginally extra environment friendly than any type of vessel on the water, we predict that there’s a very excessive likelihood even in a extra normalized market that these charters can be exercised, which implies that we are going to take these charters then successfully out by means of effectively into ’25 and a few of all of them the way in which into 2028. So I feel typically, we’ve very lengthy constitution protection on our bigger, name it, important container ships. And notably now once we chartered the 4 — sorry, the six 14,000 TEU ahead beginning ’23, ’24 and glued them right through to ’29.

Greg Lewis — BTIG — Analyst

OK. Nice. After which I am not as aware of the automobile service sector. I imply clearly, the contract with Volkswagen is nice.

As we strive to consider that chance, proper, I imply, like for us, like we take a look at world commerce, we will sort of see the power on the container market. As you look out at just like the automobile service sector, is — are there alternatives in that market to proceed to search out to deploy capital? I am simply not — like I stated, I am not likely aware of that. It looks like an amazing sector for you guys. It is somewhat bit — there’s solely a handful of vessels in there.

However is that an space the place like there might be alternatives to proceed to deploy capital there? Or was that simply sort of like a few area of interest one-off initiatives the place you have been in a position to step in and arrange some good contracts?

Trym Sjolie — Chief Working Officer

It is Trym Sjolie right here. Effectively, the automobile service market may be very attention-grabbing for us, as you say. It is a market the place SFL has an edge, I’d say. You’ll be able to usually — I imply the operators have an industrial view they usually have long-term fleet planning.

And there’s a enormous house there now for fleet renewal. You’ve all of the ships being type of redundant as a consequence of new emissions laws coming in, the place they both have to get replaced or the place they must diminished velocity fairly drastically in some circumstances. The fleet as we speak is about 700 vessels in complete, and there is fairly an enormous variety of these. I feel a minimum of a few hundred ships must be type of constructed within the subsequent 5, six, seven years, simply to interchange the present fleet.

So we see as fairly attention-grabbing. So the problem is discovering the fitting vessels, the fitting newbuilding slots and the fitting counterparties, however we really feel we’ve a pleasant view.

Greg Lewis — BTIG — Analyst

OK. Now that is nice to listen to. Sure. Like I stated, extra of the — simply not as aware of the automobile carriers.

So you have got any shade round that. It is all the time tremendous useful. After which I did need to contact on the offshore rigs. I imply, clearly, the West Linus is on long-term contract in a really enticing place.

However I used to be sort of curious how possibly we’re enthusiastic about the West Hercules, what I — it seems to be to me that asset costs are firming for that sort of rig. Like is — how is the corporate — is there alternatives to monetize that? Or is it actually we’re simply working with our — utilizing {our relationships} to attempt to discover that rig at residence and get it on contract. After which as soon as it is on contract, possibly then we may revisit possibly probably monetizing that asset?

Ole Hjertaker — Chief Govt Officer

Sure. It is a good query. We — our deal with that rig is to recontract it. Now we have employed Oilfield Drilling who’s I’d say, world chief in harsh surroundings operations.

The rig is considered one of only a few rigs that may work in arctic situations by means of the winter, which is sort of distinctive. After which we’ve a market dynamic proper now the place we — the place I feel numerous the gamers and all firms understand that it has been a basic underinvestment within the phase for a very long time. And we see an power squeeze, I’d say, notably in Europe, who has been so reliant on fuel — pure fuel from Russia now needing to supply that from elsewhere. And naturally, the North Sea may be very shut.

There are many pipelines, however it’s worthwhile to do numerous drilling to get that manufacturing going. In order that’s only one space. We additionally see numerous, name it, deal with deepwater. It might be deepwater of Brazil, deepwater West Africa the place that rig additionally could be totally appropriate.

You would not make the most of, name it, the winterized type of options of the rig, however it might nonetheless work completely effectively additionally in regular type of harsh surroundings sort areas. So I feel it is a rig with numerous flexibility. I do not assume that is the time to essentially promote that rig, if that that is what you alluded to. I imply our focus is money stream and get it contracted and constructed backlog additionally on this unit.

And we’re, in fact, inspired by the sturdy oil worth and the truth that we finalized our negotiations with Seadrill in February after which as everyone knows, oil costs topped 50% after that. So market has modified fairly dramatically over the previous few months.

Greg Lewis — BTIG — Analyst

No. Completely. Good to listen to. OK.

Effectively, hey. Thanks very a lot to your time.

Ole Hjertaker — Chief Govt Officer



And the subsequent questions come from Chris Robertson from Jefferies. Please go forward, sir.

Chris Robertson — Jefferies — Analyst

Hey, gents, and congratulations on numerous optimistic developments right here. I simply had a query associated to the Linus. On the $500 million in income backlog that you simply talked about, how delicate is that to the market index fee? And may you sort of speak round that?

Aksel Olesen — Chief Monetary Officer

Completely. I imply that was mainly primarily based on all of the market index fee on the time. We at the moment have bareboat fee with Seadrill in the course of the transition interval, the place can be supplying for the DOC, which is relevant on the Norwegian continental shelf. I feel when you take a look at the market fee improvement, going ahead, that’s optimistic, and it is also supported by latest photos of similar sort designs from — by Maersk drilling to Aker BP on offers.

In order you see sort of that market index fee probably rising going into ’23 and ’24. That can, in fact, have a optimistic affect on sort of the backlog quantity.

Chris Robertson — Jefferies — Analyst

OK. That is honest. Then on the Hercules going into particular survey, how lengthy do you count on that may take? Will that start in the course of the first quarter of subsequent yr? And the way lengthy do you assume it can take earlier than I assume it is secured on a brand new constitution after that?

Aksel Olesen — Chief Monetary Officer

When it comes to — I will begin with the timing of redelivery from Seadrill. I feel that that is at the moment estimated to this finish of the fourth quarter. Precise date remains to be to be confirmed, then we’re doing the required preparement with Oilfield Drilling for the SPS. I feel base case, I imply, we’ll sort of assume about 90 days for the SPS.

After which we’re at the moment now advertising the rig for numerous employment alternatives and a precise graduation date shouldn’t be confirmed but. I feel what I can touch upon is that when you look over the past couple of months, the tender exercise has elevated considerably, each in sort of the cruel surroundings space, nevertheless it’s additionally potential worldwide operations. However our focus, having I feel, first-in-class exploration harsh surroundings rig is to sort of hold the rig in sort of Norway, probably Canada or U.Okay. sector.

Ole Hjertaker — Chief Govt Officer

After which with respect to the present deployment in Canada, it simply began drilling a few days in the past. And due to this fact, we is not going to know till the primary effectively in that program of offshore Canada is drilled. We do not know precisely how very long time it can take to complete the remainder of the work. And due to this fact, we’ve to await that earlier than we will type of be very particular on timing for once we — when the rig can be redelivered in Norway and due to this fact when the SPS course of can begin.

But it surely needs to be round year-end. No less than that is our expectation. And that is additionally — has additionally some bearing on type of, name it, contract discussions we’ve for employments after redelivery at SPS.

Chris Robertson — Jefferies — Analyst

OK. I assume my follow-up query to that may be the journey time from Canada to Norway, after which if it is redeployed again into Canada, what the journey time could be.

Aksel Olesen — Chief Monetary Officer

I feel that considerably is determined by the climate. I feel that might be two and a half, three weeks, give or take, sort of in regular circumstances, however the rig can be a minimum of on the bottom case now being we’re sort of finalizing operations in October. At the moment, sort of the climate within the North Atlantic could be a bit uneven. So I imply all of it relies upon, I feel it is roughly estimated three weeks sort of switch again to Norway.

Chris Robertson — Jefferies — Analyst

OK. I admire that. Thanks for the time.

Ole Hjertaker — Chief Govt Officer



And the subsequent query is from Richard Diamond from Castlewood Capital. Please go forward, sir.

Richard Diamond — Castlewood Capital Companions — Analyst

Sure. Ole, I’ve two questions for you this morning, one is philosophical and one is directional. And on the philosophical query, in sure segments, akin to dry bulk, may we probably be coming into a brilliant cycle given the shortage of recent constructing, the restructuring of commerce routes akin to coal coming from Australia to Rotterdam, and so on., and so on.? And the second query is, trying ahead, what areas do you assume are essentially the most attention-grabbing to allocate capital sooner or later?

Ole Hjertaker — Chief Govt Officer

Thanks, and thanks for calling in. Sure, I’d say the dry phase, it seems to be very attention-grabbing. I’d say each the dry phase and in addition the tanker house. I imply, in each segments, you have got type of what you see your historic low order books, a minimum of in latest historical past.

I feel for tankers, it’s a must to return 20, 25 years to see equally type of low order books. And as everyone knows, the transport market, generally, has all the time been closely influenced by homeowners type of destroying their very own markets, i.e. when market appears fairly good, all people runs out and orders vessels. And when these vessels are completed on the shipyard, there are abruptly too many vessels accessible and the market crashes.

An excellent instance of this was how the dry bulk market labored in a number of years after the ordering growth in 2014, the place you had a persistently good excessive development in demand, however they have been simply ordered approach many extra vessels, and due to this fact, it took a number of years to catch up. As you level out, you have got the yards mainly full for — if you wish to order a minimum of sequence of vessels, you are not speaking late 2025 and into 2026 to get them delivered. So in both of the dry bulk market and in addition the tanker market, when you actually need to type of order a sequence of vessels, it’s a must to wait fairly a very long time. So — and within the meantime, in fact, it might be a really attention-grabbing market, given that there’s a lack of provide.

Additionally, what may affect the market going ahead from 2023 is the brand new CII laws that may probably restrict or scale back the ton mile capability as a result of order vessels, much less energy-efficient vessels, could have to cut back energy to be type of authorized and due to this fact — and that is primarily based on IMO, the brand new IMO laws and due to this fact, successfully take out transportation capability from the prevailing fleet. That is additionally an impact you see on the tanker aspect, to not the identical diploma as on the dry bulk vessels. And possibly as automobile carriers was a query right here earlier, automobile carriers are in all probability the phase the place you could possibly see extra of this impact as a result of you have got a relative low deadweight cargo capability in comparison with the scale of the vessels as a result of they carry usually automobiles and rolling gear. So I feel typically, in a number of of those segments, there are very attention-grabbing market dynamics.

After which on high of that, if you’re apprehensive in regards to the potential inflation threat, proudly owning vessels that is, in some ways, an inflation hedge as a result of they’re actual exhausting belongings. And if there may be inflation, that may pull up additionally the worth and residual worth of those belongings. Then turning to your second query, the place will we see funding alternatives. And I’d say we see — we do see funding alternatives in all these segments.

Now we have to be — we can not remark particularly on what we take a look at, however we’re taking a look at many alternatives in a number of of those sectors. And — however we attempt to watch out once we make investments. You must have a sure diploma of paranoia while you make investments in risky markets. What we attempt to do is constitution out vessels to finish customers which are usually {industry} leaders and bigger entities as a result of we predict that, over time, will give us a much less — decrease threat within the portfolio and due to this fact, larger likelihood of a really sturdy long-term return.

So I hope that solutions the query you had there.

Richard Diamond — Castlewood Capital Companions — Analyst

Thanks a lot.

Ole Hjertaker — Chief Govt Officer



Thanks very a lot to your questions. I’ll now hand again the decision to the audio system for the closing remarks.

Ole Hjertaker — Chief Govt Officer

Thanks. Then I want to thank everybody for collaborating on this convention name and in addition thank the SFL groups onboard the vessels and onshore for his or her continued efforts in delivering worth for our stakeholders. For those who do have any follow-up questions, there are contact particulars within the press launch or you will get in contact with us by means of the contact pages on our internet web page, www.sflcorp.com. Thanks.


[Operator signoff]

Period: 42 minutes

Name individuals:

Ole Hjertaker — Chief Govt Officer

Aksel Olesen — Chief Monetary Officer

Greg Lewis — BTIG — Analyst

Trym Sjolie — Chief Working Officer

Chris Robertson — Jefferies — Analyst

Richard Diamond — Castlewood Capital Companions — Analyst

Extra SFL evaluation

All earnings name transcripts