SFL Corporation Ltd. (NYSE:SFL) Q3 2023 Earnings Call Transcript

Three vessels have been dry-docked in the quarter. And our overall utilization across the shipping fleet was 99% in Q3 and 80.5% for the drilling rigs. For the rigs as well explained operating days are days on rate or in transit covered by mobilization fees, less days or fire and days spent in port not on drilling rig. One of the key ESG targets for SFL is the reduction of carbon emissions on our fleet. Such reduction can either be met by fleet renewal in more efficient ships and with greener fuels, increased efficiency of existing fleet or a combination of both. And as part of our fleet renewal program, we have four LNG dual-fuel carriers under construction in China, of which one was delivered during the quarter so three left. These vessels are among the most modern and efficient ships in the car carrier market.

The hull has been improved and optimized with the new hull form with S Bow as can be seen in the picture. And the LNG fuel system is of a high-pressure type and the vessels are adapted for both ship-to-ship and port to ship LNG bunkering. In LNG mode, we expect a 25% lower carbon footprint per vehicle carried compared to a standard 6,500 CEU conventional PGDC. The vessels are also fitted with the short connection for zero emissions operation in port. And in addition to being able to carry EVs, the ships will also be able to carry hydrogen fuel cell vehicles. The first ship Emden is on first voyage from Asia to Europe under Hyundai Glovis and she will be delivered to Volkswagen in about one week’s time. And with that, I will 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 have shown our pro forma illustration of cash flows for the third quarter. Please note, that this is only guideline to assess the company’s performance and is not in accordance with US GAAP and also net of extraordinary and non-cash items. The company generated gross charter hire of approximately $214 million in the third quarter, including approximately $2.6 million of profit share with approximately 94% of the revenue coming from our fixed charter rate backlog, which currently stands at $3.4 billion providing us with strong visibility on the cash flows going forward. In the third quarter the container fleet, generated gross charter hire of approximately $91 million including approximately $2.6 million in profit share related to fuel savings on seven of our large container vessels.

During the quarter, we took delivery of the first of our four dual-fuel LNG car carriers. With four car carriers on charter at the end of the quarter, our gross charter hire increased approximately $9 million in the third quarter compared to approximately $6 million in the second quarter. Our tanker fleet generated approximately $30 million in gross charter hire during the third quarter, compared to approximately $35 million in the previous quarter. During the quarter two Suezmax tankers were off-hire for a total of 46 days in connection with scheduled periodic dry dockings. These costs are expensed directly per shipping fleet and OpEx for the tankers in the quarters was therefore higher than normal. The company has 15 dry bulk car carriers, which eight were employed on long-term charters during the quarter.

The vessels generated approximately $20 million in gross charter higher in the third quarter seven of these vessels were employed in the spot and short-term market and contributed approximately $6.2 million in net charter hire during the quarter compared to approximately $7.2 million in the previous quarter. SFL owns two harsh environment drilling rigs the jack-up rig Linus and the semisubmersible rig Hercules. During the third quarter the rigs generated approximately $64 million in contract revenues compared to approximately $90 million in the second quarter. The Linus is currently under long-term contract to ConocoPhillips Scandinavia until the end of 2028. In the third quarter the rig generated approximately $16.6 million in contract revenues, which is down from the approximately $90 million in the second quarter as the rig was off-hire for approximately 16 days relating to an unscheduled repair of the top drive.

Due to the repair works the OpEx for the rig was also $2 million higher than budgeted for during the quarter. Hercules completed the drilling contract for ExxonMobil in Canada in September and has now been mobilized to Namibia which is expected to commence the contract with Galp Energia shortly. During the quarter the rig recorded approximately $48 million in contract revenues, as the mobilization fees paid by ExxonMobil and associated costs is recognized through the actual drilling period pursuant to US GAAP. The same principle has been applied for the mobilization fees due after the drilling contract was completed. Our operating and G&A expenses for the quarter was $86 million, compared to $68 million in the previous quarter, primarily due to Hercules being back in operation scheduled dry dockings and downtown and repair on the lines.