SFL Corporation Ltd. (NYSE:SFL) Q1 2025 Earnings Call Transcript

SFL Corporation Ltd. (NYSE:SFL) Q1 2025 Earnings Call Transcript May 14, 2025

SFL Corporation Ltd. beats earnings expectations. Reported EPS is $0.03, expectations were $-0.03.

Operator: [Abrupt Start] Investor relations In SFL. Our CEO, Ole Hjertaker will start the call with an overview of the first quarter highlights, and then our Chief Operating Officer, Trym Sjølie will comment on Vessel performance matters, followed by our CFO Aksel Olesen, who will take us through the financials. The conference call would be concluded by opening up for questions, and I will explain the procedure to do so prior to the Q&A session. Before we begin our presentation. I would like to note that this conference call will contain forward looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995. Words such as expects, anticipates, intents, estimates or similar expressions are intended to identify these forward looking statements.

Please note that forward looking statements are not guarantees of future performance. These statements are based on our current plans and expectations and are inherently subject to risks and uncertainties that could cause future activities and results of operations to be materially different from those set forth in the forward looking statements. Important factors that could cause actual resources to differ include, but are not limited to conditions in the shipping offshore credit markets. You should therefore not place undue reliance on these forward looking statements. Please refer to our filings within the Securities and Exchange Commission for more detailed discussion of risks and uncertainties which may have a direct bearing on operating results and our financial condition.

Then I will leave the word over to our CEO, Ole Hjertaker with highlights for the first quarter.

Ole Hjertaker : Thank you, Espen. We are now announcing our 85th dividend and continue building our business as a maritime infrastructure company with a diversified fleet. We reported revenues of $193 million this quarter, and the EBITDA equivalent cash flow in the quarter was $116 million. Over the last 12 months, the EBITDA equivalent has been $545 million. The first quarters result was impacted by several one of items, including impairments on some older dry bulk vessels traded in the spot market, and also the drilling Hercules being idle in the quarter, we therefore recorded a net loss in the quarter of $32 million or $0.24 cents per share. With a dividend of $0.27 cents per share, we have returned more than $2.8 billion to our shareholders over 85 consecutive quarters, and the latest dividend represent a yield of approximately 13% based on share price yesterday.

We have also been active repurchasing shares in the recent market softness, and have bought back $10 million worth of shares below $8 per share over the last few weeks. This is based on our overall capital allocation strategy with the aim to maximize long term distribution capacity per share. The seven dry bulk vessels between 57,000 and 82,000 deadweight ton were previously on long term charters and have thereafter been employed in the spot market. The vessels are built in China, between 2009 and 2012 and we have not been able to find new long term charters for these vessels due to a combination of age design and fuel efficiency. The recent market volatility and recession fears after the recently implemented tariffs makes it even more difficult to trade the vessels profitable in the spot market, and we have now sold one of the vessels and agreed to sell another.

While the impairments are $34 million in aggregate, the actual cash on cash returns from the investments in the these vessels have actually been quite decent and in the 12% to 15% range, on a levered basis for two of the super Max brokers we have agreed to sell. The reason is that the vessels were on high charters initially, but according to U.S. GAAP we have had to amortize the vessels on straight line basis from new. For other assets like the container ships and car carriers, the charter free values were around $1 billion higher than carrying costs that quarter end. So we have a significant buffer there. The drilling in Hercules has been idle since the fourth quarter of 2024 and the recent market turmoil and oil price volatility has delayed new employment opportunities for the rig, which is impacting our near term financial results.

We remain optimistic about funding new employment for the rig and continue to explore strategic opportunities for the rigs in parallel, but it is difficult to give any guiding or timing for this. The rest of the portfolio on long term charters is performing very well, and we have upgraded several vessels in the quarter, boosting both cargo intake and fuel efficiency in connection with charter extensions at higher rates than before. Our charter backlog is currently $4.2 billion and importantly, more than 2/3rds of this is to customers in investment grade rating, giving us a unique cash flow visibility and resilience in light of the current market volatility, and we have a strong liquidity position, including on road portion, on credit lines and also multiple unlevered vessels, which should enable us to continue investing in new accretive assets.

And with that, I will leave with the word over to our Chief Operating Officer, Trym Sjølie.

Trym Sjølie : Thank you. Our current fleet is made up of 79 maritime assets, including vessels, rigs and contracted new buildings. In April, we sold the Supramax in May, we will be selling the last about two old 1700 TEU container ships, the Asian Ace, she is scheduled to be delivered to buyers later this week, another Supramax is also in the process of being sold. As previously reported. Golden Ocean, the charter for our eight cape sized bulk carriers have declared their purchase option, and we expect the vessels to be delivered to Golden Ocean in July. Our backlog from owned and managed shipping assets stands at $4.2 billion and the fleet in Q1 was made up of 15 dry bulk vessels, 38 container ships, 16 large tankers, two chemical tankers, seven car carriers and two drilling rigs.

We have a diversified fleet of assets charted out to first class customers on mostly long term charters, and a majority of our customer base is large industrial end users. Container vessels dominate our backlog, accounting for about 67% of our portfolio. Key to remain an attractive partner is to ramp up investments in fleet renewal, new technology and vessel upgrades, which we are doing. Stricter regulatory demands, particularly from the IMO [ph] and the EU, aimed at cutting shipping emissions, is another driving factor. By enhancing our fleet, we position ourselves for organic growth, either by supplying new vessels to clients or extending the life of existing ones. And container operators in particular, are receptive to collaborative projects involving major upgrades like cargo capacity increases, energy saving technologies, propeller enhancements and whole modifications.

These investments deliver significant cost savings and emissions reductions benefiting both our operations and our clients. In Q1 95% of charter revenues from all assets came from time charter contracts, and only 5% from bare boats or dry leases. The charter revenue from our feet was about $193 million in the quarter. We had a total of almost 6600 operating days, defined as calendar days, less technical or fire and dry dockings or stacking. Six vessels are within dry dock in the quarter, including major upgrade projects. It’s worth mentioning that the time at the shipyard required for these container ship upgrades beyond the 15 days required for a normal dry docking is for charters account. Our overall utilization across the shipping fleet in Q1 was 98.6% adjusted for unscheduled technical or fire only, the utilization of the shipping fleet was 99.8%, a testament to a high quality of our vessel management.

When including the drilling rigs, utilization was 97.2% mainly due to the Hercules rig being idle in the quarter. The Trump administration’s recent imposition of fees on Chinese built and operated ships has garnered significant attention lately. These fees originate from a 2024 Section 301 investigation under the Biden administration, which scrutinized China’s dominance in global ship building, maritime and logistics industries, initially proposed in February 2025 by the US Trade Representative. The fees target Chinese built and Chinese owned vessels docking at US ports in an effort to bolster US ship building and reduce dependence on China’s maritime infrastructure. For SFL, the relevant provisions are Annex 2 , covering Chinese built vessels, and Annex 3, addressing foreign built car carriers, a new addition, not part of the original February proposal.

This effectively applies to nearly all non-U.S. flagged vehicle carriers. So of our 79 vessel fleet, approximately 27 will be affected by these fees. In our estimation, primarily car carriers and tankers with potential impacts on larger container ships later, depending on our fleet composition going forward. However, since our vessels are in long term charters, these fees will be passed on to charters. We are currently investigating the practical implementation of these fees, particularly the payment processes, which we are discussing with charters. On the energy side, the Linus rig earned $20.3 million in Q1, more or less flat from Q4 with three days of downtime in the quarter. Due to good performance the rig was recognized as ConocoPhillips Rig of the Month for all three months in the quarter, OpEx was $12.2 million in Q1 slightly down from Q4.

Subsequent to quarter end, the marketing rate of Linus have been adjusted up by 2% from May 1st. The Hercules rig is currently warm, stacked in Norway and being marketed for opportunities later in 2024 and 2025 and 2026 During the first quarter, the rig recorded $2 million in revenue relating to equipment rental income. The majority of this equipment has been returned to SFL subsequent to quarter rent, and we did not expect to receive further rental income. Rig OpEx was approximately 6 million in the quarter, reflecting warm stacking costs of the rig. I will now give the word over to our CFO Aksel Olesen, who will take us through the financial highlights of the quarter.

Aksel Olesen : Thank you, Trym. On this slide, we are shown a perform illustration of cash flows for the first quarter. Please note that this is only a guideline to assess the company’s performance, and it’s not in accordance with U.S. GAAP and also net of extraordinary and non-cash items. The company generated gross charter hire of approximately $193 million during the first quarter, with approximately $85 million coming from our container fleet, including approximately 1.7 million in profit share related to fuel savings on seven of our large container vessels. As in the previous quarter, revenues impacted by scheduled dry dockings and efficiency upgrades on some of our large container vessels. The car carrier fleet, generated approximately 25 million of gross charge hire in this quarter, including profit share from huge savings, which is slightly down from the previous quarter as one vessel and went as scheduled, dry docking during the quarter, a thank you fee generated approximately 43 million in gross charter hire, slightly up from the previous quarter as all five [indiscernible] vessels acquired in 2024 and the first two quarter of revenue.

As well as 15 dry bulk vessels, of which eight are employed on long term charters, the vessels generated approximately 18 million in gross charter hire in the first quarter. The seven vessels employed in spot and short term market contributed with approximately $4.4 million in net charter revenue, compared to approximately $7.2 million in the fourth quarter. SFL owns two harsh environment drilling rigs, the large jack-up rig Linus and the ultra-deep water semi-submersible rig, Hercules. The rigs generated approximately 22.4 million of charter higher in the quarter. Our operating and G&A expenses for the quarter was approximately 78 million but from approximately 104 million in the fourth quarter, as operating expenses on the Hercules is reduced in the current form, stacking mode, compared to two in full operating mode when the rig is on contract.

Going forward, we estimate operating expenses for approximately 80,000 per day for Herclues in the current worm stacking mode, excluding potential upgrades, this summarizes our adjusted EBITDA of $116 million compared to $132 million in the previous quarter. We then move on to the profit and loss statement as reported on the U.S. GAAP for the first quarter, reported total operating revenues approximately $187 million compared to approximately $229 million in the previous quarter. The contribution from our vessels was approximately $171 million compared to approximately $177 million in the previous quarter other rigs contributed with approximately $22.4 million, down from approximately $54.9 million in the previous quarter, as [indiscernible] was idle in the first quarter.

Vessel operating expenses in the quarter was approximately $58 million, including $10 million related to scheduled dry dockings, compared to approximately $64 million in the previous quarter, including $14 million related to scheduled dry dockings. Dry dock expenses for ships are being expensed when incurred, and the vessels are out of service during the dry dock period, reducing revenues temporarily. The net result in the first quarter was also impacted by non-recurring or non-cash items, including less impairments of $34.1 million relating to seven non-core driver vessels trading in the spot market. So overall, and according to U.S. GAAP, the company reported a net loss of approximately $31.9 million, or $0.24 cents per share compared to a net profit of approximately $20.2 million or $0.15 cents per share in the previous quarter.

Moving on to the balance sheets, at quarter end, SFL had approximately $174 million of cash and cash equivalents, in addition to undrawn credit lines in amount of approximately $48 million. In addition, the company had unencumbered assets with a market value of approximately $187 million at quarter end. The company has conducted share repurchases of approximately 10 million, and approximately 40% of this had been acquired by quarter end. During the quarter, the company repaid that facilities in the amount of approximately $47 million, in addition to ordinary law installments of approximately $65 million. We also had vessel upgrades related some of the large container cells of approximately $20 million during the quarter, most of which will be reimbursed to charter rate increases.

We furthermore had remaining capital expenditure of about $850 million remaining on five large container vessels expected to be funded through pre and post-delivery funding. Those vessels are expected to be delivered in 2028. So based on the Q1 numbers, the company built equity ratio of approximately 36%. Then to conclude, the Board has declared the 85th consecutive cash dividend with a dividend of $0.27 cents per share. We have returned more than $2.8 billion to shareholders over the years. We also mean active repurchasing shares in the recent market softness as part of our overall capital allocation strategy, with the aim to maximizing long term distribution capacity per share. Our charter backlog is currently $4.2 billion and importantly, more than two thirds of this is the customers with investment grade rating giving us a unique cash COVID visibility and resilience in the light of the current market volatility.

Furthermore, our strong balance sheet and liquid position provide us flexibility in the current market environment and enables us to pursue new investment opportunities. And with that, I give the word back to the operator who will open the line for questions.

Q&A Session

Operator: [Operator Instructions]. We will have our first question from Gregory Lewis.

Gregory Lewis: Yes, thank you. And good afternoon everybody, and thanks for taking my questions. I was hoping for a little bit more color on kind of vessel and rig operating expenses. I mean, clearly that was their nice step down sequentially. I’m assuming that’s a little bit around maybe some cost savings at the Hercules. But you did mention some, some dry dockings. I’m kind of curious, as we look out over, you know, the rest of the year, you know, Q2, Q3, Q4 and any kind of color around planned out of service days around dry dockings, and then in the event that we were able to, or when we do get work on eventually get work on the Hercules. How should we think about the rescaling of OpEx related to that rig?

Trym Sjølie: Trym Sjølie here, I think, relating to the your question on dry dockings and OpEx, we this year is a very busy dry docking year, I think we’re looking at, I mean, some, some dates can move, but up to sort of 17 vessels, which if you just straight line, it sort of an average year would be 10. So it’s more than usual and we had a heavy dry dock schedule in Q1 and Q2 will also be more than usual. And then it will taper off in Q3 and Q4 and into next year. So the brunt of the sort of dry dock related costs are sort of taken in Q1 and Q2 this year. I’ll leave it to Ole to give some color on the Hercules. That’s a little bit of a different issue. So I think was that clear enough from the dry docking question, or would you know?

Gregory Lewis: No, that’s super helpful.

Trym Sjølie: Okay. And maybe Ole on Hercules?

Ole Hjertaker: Well, you know, the we are both, both rigs, you know, incurring OpEx, Linus the regular OPEX has been working has had a very high utilization through the charter has been rig of the month every month during the first charter quarter, which is with ConocoPhillips, which is very good, the Hercules remain stacked in Norway, awaiting new contract opportunities. We cannot be specific. I mean, we are discussing opportunities, but we cannot be specific on that. We will report that when, we have concluded something, while the rig is there, we are keeping it warm stacked, which means that there is a run rate cost for the rig. It’s in the region of around $80,000 per day to keep a rig like that warm so it’s ready to go out on very short notice.

We’re also doing some upgrades on the rig to ensure that it’s very attractive rig in the market but in light of the recent market volatility and oil price volatility, we’ve seen that all companies, and this is both onshore and offshore are a little careful with their investments and therefore, we’ve seen several oil companies guiding that their CapEx is adjusted downwards given the uncertainty. So but at the same time, you know that specific rig is one of relatively few rigs with capabilities of drilling in harsh environment during winter. So we do believe there will be good demand for the rig on the road, but we cannot be specific on exactly when.

Gregory Lewis: Yes, super helpful. And just following up on that if I were to think just if I pick a date for the rig to go to work, is it kind of safe to, I mean we’re spending money to keep the rig hot, active, ready to go, is it safe to just assume that in the quarter leading up before work, before putting that rig back to work. You know, maybe there’s a couple million dollar impact OpEx or not, or something even–

Ole Hjertaker: Yeah, so Greg you are absolutely correct. So I would assume in the quarter, before it goes on the contract, it’s more like run rate contract as per on a normal contract, yeah, so there’s a step up in that period.

Trym Sjølie: You basically have to put more people on the rig, and have to prepare and you typically earn the charter rate when the rig starts drilling. So in the weeks ahead of that, you have always a ramp up of OpEx up to run rate levels. So that’s just a normal part of that.

Ole Hjertaker: Yeah, mobilization cost effectively.

Gregory Lewis: Yeah, perfect, okay, and then just clearly there’s a lot of uncertainty out there around I guess there’s multiple issues happening. I guess, what I wonder is just given the business model of redeploying capital on accretive deals, how have, what is kind of, I guess, in terms of asset sale opportunities. And I mean, or I should say, asset acquisition opportunities for SFL, how has that changed over the last few months and then really what has been the appetite for customers to actually, look to charter in tonnage, longer term, just because for SFL you need, you need to be able to get your hands on the asset, and then you also need to be able to contract the asset. Just kind of curious how that’s kind of evolved over the last few months. And I’ll stop there.

Ole Hjertaker: Yeah. Well, I think there was a distinct difference between what was a February, early March and what was it going into April with, with all the noise around the tariffs, you know, and port fees and whatnot. So my, you know, our sense is that, particularly in April, everyone in the market were a little hesitant, because nobody could see, had visibility on what was actually going to happen in the various segments. And so basically, across the board, higher uncertainty means that decision processes take longer at the same time, you know the customers, then we’ve look at our core fleet, and where our strategy is, which is long term charters to very strong industrial players as you know, we have like two thirds of our backlog to investment grade companies.

These are not companies that are that sort of live or dies on the spot market rate. These are companies who have a more longer term logistics mindset, and therefore aren’t necessarily so dependent on the short term market. So we see already now that what was a discussions we had earlier in the year where we that sort of went a little slowed down for a period is now picking up again. So we think that with some more stability and predictability in, you know, around world, trade and tariffs in particular, you know, will we hope that? Will, you know, lead to more business, call it executable, business transaction. Also on along alongside with that, you had a very hot year last year and the year before, on the new building side, where shipyards, what do we say?

Kept rising, you know, the prices. So with a little lower activity, maybe you can also see some softening on price expectation, which also comes nicely together with investment opportunities, and we have quite decent capital available, both as cash, we have on road facilities and also some assets available. And I think importantly, we’ve built up a standing over more than 20 years now as a very reliable call it the customer for funding institutions, banks, particularly in Asia and we are very active in the Japanese market, for instance. So with long term predictability we’re there. You know, we always perform means that we think we have pretty good access to capital in four new project now. And you know that is, you know, with these at least based on our interaction, but as always, we will never guide on how much we will do in any specific quarter beforehand.

We report deals as we do them, and historically, as you’ve seen, some quarters, we are very active. Others quarters, we are not. It’s all about trying to do the right deals and not just do it on a program basis to get the right deals.

Operator: All right, then we will take our next question from and sorry if I’m mispronouncing your name Clement Mala [ph], please unmute your speaker to ask your question.

Unidentified Analyst: Thank you for taking my questions. I wanted to start by following up on Greg’s question on the Hercules, you’ve been clear it’s difficult to provide any guidance regarding when the asset will come back. But would you talk a bit more on the upgrade you’re conducting under expected cost?

Ole Hjertaker: I’m sorry upgrades to the Hercules specifically, you mean?

Unidentified Analyst: Yeah, exactly.

Ole Hjertaker: Yeah so what we’re doing as we speak when the rig is idle or hot stack, like now, you know, for instance, we are doing some work on the flooring, which is effectively part of that claim with Seadrill, that where we were awarded, you know, COVID money from Seadrill. That’s one of the items there was that the flooring in the in the living quarters there was not maintained as it should, and therefore, indeed needs to be redone and that’s very difficult to do when the rig is working because then you have to shut down sections of the living quarters. So that is something that we’re doing now. We’re talking a couple of $100,000 expense to do that but that is something that we hopefully when Seadrill cases is finalized in the end, you know, that’s part of money, we will be effectively compensated for.

We’re also upgraded the drilling control system to the state of the art controls fully automated systems, which is something you typically need in the harshest of environments when the rig is working and the cost level for that is $7 million – $8 million. We’re also replacing some electrical systems at the same time to make ensure that it’s more reliable which are also expenses that will come some of them later in the year, with a couple of million dollars. So we are active on the rig. We are making sure that it’s very attractive for all companies to use, and make sure that it’s a safe and warm asset. These are assets that if you put a rig in what they call cold stack, i.e., you leave it there and with minimal manning, if any and don’t keep running the equipment and maintaining it, it takes relatively short time until it becomes very expensive to reactivate the rig.

And we believe that it’s better value for us to do these call it investments, including keeping the warm stack costs, which will then hopefully enable us to find work for the rig. We have to remember that this rig is legacy asset in SFL, we were never supposed to own and operate or call it — never supposed to operate the rig Seadrill back in the day, they had a they had a purchase obligation. There was really a financing structure. So after two rounds of Chapter 11 in Seadrill, we ended up taking it back. We were awarded around $48 million by a court after we sued them for — call it the lack of maintenance that was been appealed. That case is coming up next year. So we believe we have a very strong case, as supported by the first round but we have not recorded anything in our accounts.

we have expensed legal fees along the way, and have nothing in our accounts as call it value for that potential final court award, when that comes up. If we look at the other assets we have in our portfolio, which is really your core assets there, we control the maintenance ourselves, and we can do all the preventive maintenance we need to do and therefore have a very different dynamics in terms of what it costs to keep these vessels. As we go with the customers like Maersk, Hapag-Lloyd, Volkswagen, K Line and others.

Unidentified Analyst: That’s very helpful. Thank you. Actually also wanted to ask about the 35 million in remaining CapEx you mentioned, which is attributable to efficiency upgrades on the container ships. How should we think about the cadence for those?

Trym Sjølie: I think when they will I mean–

Unidentified Analyst: Yeah, exactly. So like, when will you incur into the expense?

Trym Sjølie: I think most of the costs remaining, which is for the container ships. It’s around $18 million at the moment for the upgrades. And they will be incurred in Q2 and Q3. And they will be on these vessels, particularly that we are talking about, they will be 100% covered by a rate increase on the charter and it also includes the upfront [ph] that we incurred due to the longer dock duration, over and above a normal dry docking of about 15 days.

Unidentified Analyst: Makes sense. Thank you. And final question from me, the Board decided to maintain the dividend despite the Hercules remaining open. Could you provide an update on how you build, let’s say, long term distribution potential, and how do you balance that with share repurchases?

Ole Hjertaker: Yes, the dividend is set on a quarterly basis, so we never provide any guiding on the dividend as a matter of principle, and never have but the dividend, typically, or I would say, the mindset behind the dividend is a long term sustainable level based on cash flow, net cash flow, produced by the assets we own. So the comment relating to Hercules here and the employment was really in the context of a prolonged lay-off and therefore associated costs and no revenues for that rig for the long run. But we felt that it was appropriate to mention that you know that you know depending on how long that will take that will have an impact on the cash flow to the company and therefore, eventually also the distribution capacity that we have.

If you look at capital allocation, you know, it’s a combination of investments, debt issuance, debt repayments, share buyback and dividends. So that is really how that is allocated between those is really a question of maximizing long term distribution per share and any effectively overseen by the Board. So like the share buyback we did, it’s around $10 million and if you look at the dividend now it’s more than 30 so it’s not a huge proportion relative to the dividend, but the Board felt that it was a very attractive level. It was below $8 on average and we’ve done we also bought back some shares in 2023 So that is a part of that toolbox that the company has to maximize returns over time and it could be any combination of these elements,

Espen Nilsen Gjøsund: Before we go to Mr. Baldoni [ph], I see we’ve gotten some questions in here via text. So because the first question is, are container vessels still the preferred segment for building the contract backlog going forward?

Ole Hjertaker: Yes, we look at many segments in parallel. We have a diversified, you know, call it the market approach in the maritime space. So we look at we have look at container ships that we have done few car carriers in the past. We’re looking at tankers, we are looking at chemical carriers and we were also looked at the gas carriers recently. So I cannot guide specifically on that, but what’s important here for us is high end assets, modern high end assets, to very strong counterparties, where we can have a real value for them in their value chain. And the reason why we have built up a number of ships in the container ship segment is that we can do just that. We have very strong operational performance, and can combine that with access to attractive financing structures and can therefore be competitive for these companies and add on in their value proposition.

And part of the value proposition is to run the ship as efficiently as possible. So part of the investments that Trym mentioned on the container ships, or investments that are that are making you call it moving boxes, more efficient. And we calculate on these vessels, around 20% efficiency improvement, which is a combination of both hull modifications, maybe new propeller, the increasing cargo intake and all of that are bringing down the effective fuel cost per box, which is creating a better value for a line of company or in other segments that could be an energy company, if you look at the tankers. So this is something we always work on and we kind of guide on specific segment allocation.

Espen Nilsen Gjøsund: Thank you. And another one here, given your backlog to diversified majority investment grade counterparties and the fact that you’ve become an energy infrastructure company now, can you work to decrease your debt interest costs in particular your credit spreads over SOFR, your recent refinance debt still has a rather large credit spread versus your diversified long term backlog and strong cash/balance sheet.

Trym Sjølie: Sure. Thank you for that. Just observe I think if you look historically in terms of where we get the margins we obtain in the market, I think, at least in the six years I’ve been here, it’s been coming in quite significantly especially over the last 12 to 24 months, in terms of what we’re achieving in both the conventional call it commercial bank market, But also when doing a Japanese operating leases, so things almost enterprise, very competitively, at least on the on the asset pack, the financing that we’re achieving, also in terms of call it profiles, [indiscernible] that slowed, the the party guarantees do most of these facilities, so yeah.

Operator: And then we’ll go to [indiscernible].

Unidentified Analyst: Sorry, another question on the Hercules, how long can it remain warm, stacked?

Ole Hjertaker: With the stacking call it the methodology, or the stacking plan we have on that rig that can remain stacked for quite some time without causing a problem. Part of what we’ve done, for instance, in the stacking now, is that we are doing work that will effectively delay the next SPS, or dry dock, call it position on the key equipment on board the rig. But that’s also, you know, a reflection of the capital or the stacking costs that we are spending on the rig to ensure that it is remarkable. If we had dropped that, of course, you could drop it down significantly, but then you are running into a situation where you may have to replace a lot of equipment on the rig to bring it back out working, and then you would need a much longer contract at high levels to justify that.

So I would say for now we can keep it like that for several quarters but of course, we are — we look at that continuously and from our perspective, it’s always a question of investing capital versus getting capital back. So it’s something that’s we spend quite a bit of time on. Since it’s a costly asset and the stacking costs are relatively high.

Unidentified Analyst: Yes, understood. I just, for some reason, thought that maybe there was, you know, a time limit so to speak where I understand there’s a lot of different factors involved and I suspect that you wouldn’t be spending the money if you didn’t think that there were opportunities to re-contract it?

Ole Hjertaker: You’re absolutely right. What we have seen in the past, if you we’ve seen companies who are dropped, call it, we have sort of what was cold stacked rigs, and value docking [ph] a matter of months before. It’s almost not remarketable. Because what we what we have to remember, is that a drilling a drilling rig is a very different call it concept, really than a ship, a ship that’s basically where you carry cargo on the ship but a drilling rig is really just the platform, or whatever, where you put all the drilling equipment so for an oil company who are extremely focused on safety and performance and operational issues, you know, they would be very careful on taking in a rig where the system hasn’t been maintained and run properly.

We are working together with, with [indiscernible] drilling here. They are the manager for us on the Hercules, the rig has had a very strong performance first for Exxon in Canada, then for Galp in Namibia, then [indiscernible] for Ecuador in Canada. So they pride themselves in having very high-end standards, which is of course, also helping us in the marketing of the rig with oil majors, because they know that, okay, this rig has been capped at the highest standards. You know, this rig is being effectively maintained and systems are run, which means that there is a lower risk of taking the rig out compared to something that’s been most bold for a long period,

Unidentified Analyst: Right. And I also suspect there’s multiple solutions to this and some of them might involve some creativity to kind of insulate the broader company at a whole. So can leave it at that but thanks. And then so you mentioned that you know the new build spend. I mean, most of the remaining $800 million odd is going to — need to be placed closer to delivery, or are there still more payments to be made?

Trym Sjølie: No. I think the remaining, I mean, so far, we paid approximately $150 million last year. And then you have some additional pre-delivery installment starting at 12 months before each ship is delivered. So starting in Cuba in 2027 which we are in discussions with, kind of various banks and financial institutions in terms of fully funding in combination of, call it pre-delivery and then post-delivery financing, yes.

Unidentified Analyst: Okay. And could you elaborate, maybe on the Annex 2 and 3, 27 vessels impacted. So are those — how many of those are — they’re impacted if they trade to the to the United States. So can you just elaborate on that?

Ole Hjertaker: In our fleet, we have 38 now, Chinese built vessels, and then we have the car carriers that are not China — four of them are Chinese built, and three of them are, sorry, five Chinese built and two not. But all the car carriers are sort of, and when we say impacted, we mean that they would be impacted by calling the U.S. So some of the vessels are exempt, like they can be Chinese built, but below a certain size, like small container ships, or below 4000 TEU and bulkers below a certain size. So when we look at the numbers and based on the way that our ships trade, we see that right now, the most affected sectors are car carriers and tankers in the SFL fleet. Our container ships aren’t really impacted because they’re either not built in China, which is most of them, or they are smaller and if you just give you some idea of what we are talking about for us, if you look at SFL’s trading pattern last year and our U.S. calls, we would incur about $26 million in port fees given the 2025 sort of fee schedule, if you sort of impose them on what we did last year.

Now we believe that our charter is will probably change their trading pattern slightly due to this. But we don’t see, but we don’t see much change for the car carriers, actually, because it applies to all car carriers. So the only thing that can reduce that number is less trade to the U.S. in general. We do not expect that, though, and it’s important to say that it’s we look at this as chart plus costs and the only thing that we are sort of looking at is how the fees will be handled in practice, i.e., who have to pay them? Is it part of the clearance of investment to the port, or how is it actually going to work? And it’s too early to say, so we are working with our charters to find out exactly how it’s going to be handled in practice.

Espen Nilsen Gjøsund: Thank you. Now I would like to thank everyone for participating in this conference call. If you have any follow up questions to the management, there are contact details in the press release, or you can get in touch with us through the contact pages on our web page, www.sflcorp.com. Thank you all for listening.