SFL Corporation Ltd (SFL) 2008 Q2 法說會逐字稿

Please stand by. This is Premier Global Services. We are about to begin. Good day and welcome to the Ship Finance Q2 2008 results presentation conference call. For your information, today's conference is being recorded. At this time, I would like to turn the call over to your host today, Mr. Ole Hjertaker. Please go ahead, sir.

Thank you and welcome to Ship Finance International's second quarter conference call. From the Company here today we have Lars Solbakken, the Chief Executive Officer. My name is Ole Hjertaker and I am the Chief Financial Officer.

Let me turn to forward-looking statements, page two. Before we begin the 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, intends, estimates or similar expressions are intended to identify these forward-looking statements.

These statements are based on our current plans and expectations and involve 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 results to differ include conditions in the shipping, offshore and credit markets. For further information, please refer to Ship Finance's reports and filings with the Securities and Exchange Commission.

Next page. Today, we will discuss the second quarter 2008 highlights and also touch onto some subsequent events and we will also go through the financial results for the quarter. Thereafter, we will open up for questions and answers.

Next page. The Board of Directors has declared an increased dividend of $0.58 per share. This represents $2.32 per share on an annualized basis, or 8.5% dividend yield based on the closing price yesterday of $27.24. Stable and increasing long-term sustainable dividends is very consistent with our strategy.

The net income for the quarter was $71.3m, or $0.98 per share. This includes $33.1m of profit share and also a $10.6m gain on sale of a single-hull vessel and a positive mark-to-market of swaps of $3.2m. Most of our interest rate swaps are now restructured to hedge accounting, based on strict SEC guidelines. This means a lower variance in mark-to-market than we would otherwise see quarter to quarter.

I would also like to note that we received an upfront payment relating to the single-hull vessel Front Sabang that has been classified as repayment of investment in finance lease and is therefore not included in the net income.

We have a continued high profit share in the quarter, as I mentioned. We have $66.8m year to date and this profit share contribution is payable in March 2009. The strong tanker market continued into the third quarter but market has slowed down in August.

Frontline also expects to dry-dock seven vessels in the third quarter versus five vessels in the second quarter, and that was also up from two vessels in the first quarter. The dry-docking will of course impact the basis for the profit share.

If you turn to the fixed charter hire, that was $136.9m or $1.88 per share excluding profit share but including a vessel not consolidated, based on US GAAP. This is in line with the previous quarter. And this number also excludes the $21.6m upfront payment relating to the Front Sabang.

The EBITDA equivalent, net of OpEx and G&A expenses, was $142.5m or $1.95 (sic - see presentation) per share.

Next page. We have continued our reduction of single-hull exposure and excluding vessels sold on hire purchase terms only seven single-hull vessels remain in our fleet. Most of these vessels are sub-chartered by Frontline through 2009 and into 2010. The remaining value in our balance sheet is very low compared to our overall assets and these vessels will effectively have been written down to scrap by 2010.

The Front Sabang was delivered on its new hire purchase arrangement in April and the basis for the new hire purchase charter rate was an implied value of $57m. The deal is structured so that we receive $21.6m upfront payment and then a $29.9m bareboat per day -- sorry, $29,900 bareboat rate per day for three and a half years.

If you look at the bareboat rate and compare that to the charter rate that vessel was earning immediately before it entered the charter, the charter rate is up $12,000 net compared to the previous charter arrangement if we subtract the operating expenses on the vessel at the time. We paid $24.8m to Frontline for the termination of the original charter.

In the quarter, we have also taken delivery of the first of two 17,000 deadweight chemical tankers. These vessels are chartered on 10-year charters at $8,000 per day on a bareboat basis and the first vessel was delivered in mid-April. The second vessel is expected to be delivered in September. The annual net contribution from this deal, after interest and installments, is $1.4m per year or approximately $0.02 per share.

Next page. The ultra-deepwater drillship West Polaris was a record-breaking transaction in the market. It was the largest average single asset sale leaseback in the maritime industry with $850m on the rig. And also, it added around $1.1b to our charter backlog. The deal was financed by a combination of $150m equity contribution and a $700m bank loan.

There is a reduced rate in the three-month mobilization period and we will therefore have the full cash effect from that rig in the fourth quarter. We don't take interest rate risks on this rig, as the charter rate is adjusted based on prevailing interest rates.

The interest has been swapped for the full five years -- first five years and the adjusted charter rate will now be $120,000 the first three months and approximately $345,000 on average for the remaining period of the first five years. The return on equity on this deal is around 15% to us.

We have also announced the sale of two new-building Suezmax tankers in July and the sales price was agreed to $111m per vessel, less commission. This is significantly higher than the yard contract price of $71m. And if we add also some expected costs relating to construction and interest in the construction period, we expect to book a profit on these vessels of $68m. This will be booked in 2009, when the vessels are expected to be delivered.

Our intention is to reinvest the proceeds from the sale of these Suezmax tankers and, as an illustration, the gain from the sale of these two vessels is equivalent to almost the equity investment in half a drillship.

If we turn to page seven, we want to highlight that we have a significant portion of our balance is accounted for based on lease accounting. On slide 22 in the presentation, which is an appendix, we have a breakdown of the finance leases in the different components, including forward fourth quarter estimates.

I mentioned earlier that we paid 21 -- sorry, that we received $21.6m relating to the hire purchase for Front Sabang. As you can see, this is included in the gross operating revenues but then netted out again immediately through repayment of investment in finance leases and is therefore excluded from the total operating revenues.

We will comment on the operational performance for the different segments separately a little bit later in the presentation.

The profit share was approximately twice the level in the corresponding quarter in 2007 and we also booked a gain on the sale of Front Sabang of $10.6m. The ship operating expenses are down and we now also see the fruits of our deliberate avoidance of operating expense risk. As an illustration of this, all the vessels on charter to Frontline have an operating expense agreement based on $6,500 per day fixed, including dry-docking expenses. This is a fixed amount without escalation, all the way through the end of the individual charters.

Frontline today reported $9,600 per day average operating expenses on their fleet they operate, but this excludes dry-docking. And including dry-docking, for this quarter they reported $11,600 per day. We expect the trend with escalating operating expenses to continue across all vessel segments in the near term.

The depreciation expense reported in the quarter was $7.1m. This is up from $6m in the first quarter. The increase is partly due to the addition of the first chemical tanker, but is also due to an adjustment that was made in the first quarter that effectively reduced the depreciation in the first quarter. The level of depreciation that we present here in the second quarter is therefore more in line with the level we would expect to see going forward.

If we turn to the balance sheet on page eight, we just want to highlight that our current asset -- that other current assets includes the current portion of repayment of investment in finance lease, i.e. a part of the book value of those assets. And of the $202m, $184m was related to finance lease assets and the other approximately -- and the other $50m was related to derivatives and instruments receivables.

Also, if you look at the book value of our assets, these are significantly below market values. If you take Frontline fleet as an example, they had end of second quarter a charter fleet value in the region of $4b to $4.1b. The book value on our books for these assets are in the region of $1.7b and the loans against these vessels are in the region of $1b.

Next page. In the cash flow statement, I only want to point your attention to the first item under investing activities. This is where repayment of investments in finance leases appears in the cash flow statement and this is the amount that is subtracted from our revenues in our P&L. In this quarter, this number amounted to $71.1m which also, as I mentioned before, includes the $21.6m relating to Front Sabang. In the second quarter of 2007, we had a similar transaction relating to Front Vanadis and at the time the extraordinary repayment of investments in finance leases amounted to $12m.

If you turn to page 10, we will talk a little bit about our operational performance. We generate a very significant cash flow per charter, which is based on a large performing fleet. And then we have a moderate payout ratio, as we reserve significant capital for debt repayments. A popular measure for dividend payout is what we call contribution after interest, or EBITDA less interest versus dividends paid.

In the quarter we had approximately $28m of net interest or $0.39 per share, which is down from $31.9m in the first quarter. This is based on a reduced interest rate level, from a LIBOR base of 3.3% in the first quarter to 2.75% in the second quarter. The contribution after interest was therefore approximately $114m -- it was [$114.5m] or $1.57 per share, while the dividend declared is $0.58 per share. This gives a payout ratio on these metrics of 39%.

Of course, EBITDA less interest does not factor in capital used for reinvestments and debt repayment. And as we continue to pay down our debt with a fairly steep repayment profile, we also, of course, want to preserve capital for this purpose.

If you look at the changes from the first quarter to the second quarter, on the tanker side, we have the Front Sabang in with the new higher charter rate of $29,900 on a bareboat basis from mid-April. And also, delivery of the first chemical tankers happened in mid-April and that revenue from that vessel is $8,000 per day. There is no operating expenses associated with these vessels and the vessel operating expenses therefore came down. If we include general and administrative expenses, the costs reduced from $28m in the first quarter 2008 to $27.5m in the second quarter.

If you look at the next quarter and expectations there, we will then have a full quarter of Front Sabang and also the first chemical tanker. But more importantly, we will also then have the West Polaris in the offshore segment with $120,000 per day for 80 days approximately in the quarter. At the same time, the second of our jack-up rigs, Front Prospero, has a reduced rate after the initial 400 days. This happened now in August and the charter rate for that rig dropped from -- was then reduced from $160,000 per day, approximately, down to $80,000 per day.

It's important here to highlight that this is, of course, also reflected in the financing structure we have there and the net contribution after interest and debt amortization is stable, although the gross charter hire is reduced.

If you look at the fourth quarter, the main difference will be that the West Polaris will then be in for the full quarter and also at the increased charter rate of $350,000 per day in the quarter. We will then also expect to have the second chemical vessel delivered with full earnings effect.

If you turn to page 11, on diversification and growth, we want to highlight that Ship Finance started as a pure tanker company, effectively, where all the combination carriers, or OBOs, were trading in the tanker market. The growth into bulk, container and offshore has happened during the last two-year period and has been fuelled by profit share payments for Frontline and also sale of single-hull vessels.

If you look at the net cash commitments for the rest of 2008, we estimate that to $219m relating to our new projects. This also includes the $850m drillship transaction, which has been paid already and the drillship is generating revenues currently. If you compare that to our available liquidity at the end of the second quarter, this was $243m, and I will get back to a breakdown on that a little later here.

If we look at the capital expenditure, these amounts are net of any sellers' credit and of course also includes the two new-building Suezmax vessels that we recently have announced sold. The net proceeds from the sale of those vessels are expected to be $217m in total, net of commissions.

We also want to highlight that in certain projects, such as the five container vessels to be delivered in 2010, 20% of the contract price has been paid in as equity already and a significant portion of the remaining capital commitments is expected to be funded by bank financing.

Also, we want to mention that the exact delivery of vessels under construction is always uncertain and timing of the investments, as we specify here, may therefore be adjusted over time. Generally, when we have agreed to acquire vessels in combination with a long-term charter, we typically invest the capital at the actual time of delivery and this will therefore mitigate any economic effect or potential delay.

If you turn to page 12, on financing and liquidity, we have a loan portfolio of approximately $2.3b, including around $449m bond loan. We have more than 25 banks in our syndicates and very good access to capital. And the drillship transaction demonstrates our ability to source capital in an otherwise difficult financing market for most companies.

With our portfolio of long-term charters, our strategy is to hedge a substantial portion of our interest rate exposure. This is done through swaps, fixed interest adjustment clauses and also interest compensation clauses through charters. The level of hedging has increased during the first two quarters of the year, also based on what we view as an attractive interest rate curve, and currently approximately 75% of our interest rate is effectively hedged.

We also want to highlight that most of our new projects have been structured with limited or no recourse to our balance sheet. The Horizon Line deal has been structured without guarantees from Ship Finance. The two jack-up drilling rigs have guarantees from Ship Finance relating to the loans in the region of $10m to $12m -- sorry, $10m to $20m per rig. And for the drillship transaction, only $100m of the $700m loan is guaranteed by Ship Finance and this is reducing to $70m after five years.

Of approximately $1.7b in limited recourse financing, and this, of course, also includes the $700m drillship deal, $240m approximately is guaranteed by Ship Finance, or only 14% of that loan exposure. If you look at the capital available at the end of the second quarter, we had $243m including existing revolving credit facilities. We also have accumulated $66.8m profit share year to date and we believe there is potential for more profit share also in the second half of 2008. This is all payable next year.

We also have additional unpledged assets. And for your information, we are currently in the process of raising $58m against two currently unpledged container vessels. We also have several vessels with very low associated debt. And on top of that, in 2009 we expect to get the cash from the sale of the two Suezmax tankers and we expect that to take place in the second half of the year.

If you look at some of the investments that we expect will happen in the third and fourth quarter, we have already invested $150m in the drillship deal. We expect to invest $5.6m of equity in the chemical tankers. Also, at the very end of the fourth quarter, we expect to invest $10m in the first seismic vessel and $15m in the first Capesize bulker on charter to Golden Ocean.

We will also pay some new-building installments to yards and specifically on the Suezmax tankers. And for your information, we have currently paid around in excess of $50m from our equity in yard down payments and we believe that we can also arrange financing for the remaining yard commitments.

If we look at the next page, page 13, we have a history of paying very stable and increasing quarterly dividends over time. This is now the 18th consecutive quarter where we have paid a stable or increasing dividend. The dividend of $0.58 per share equals approximately 8.5% dividend yield based on yesterday's close price.

And going forward, we expect that new transactions will be net accretive to the long-term dividend capacity and as illustrated by the $0.02 per share quarterly increase relating to the recent drillship transaction.

Slide number 14. The profit share agreement with Frontline has been very favorable for the Company. The original charters were structured much lower in the tanker cycle and therefore have a fairly low profit share threshold. On average, the profit share contribution has been $89m per year and this has generated $400m over the last four and a half years. This has enabled the Company to fuel significant growth and, based on the market outlook, we expect also our profit share to be generated in the second half of 2008.

If you look at page 15, we there illustrate some sensitivities related to the profit share contribution. This is an estimate of the third quarter and fourth quarter profit share on average versus the tanker rate in the market. And this is the spot tanker rate and, of course, Frontline has sub-chartered several of these vessels to other operators and users, so therefore the actual charter rate earned net to our vessels will be lower but this is reflected in this graph.

The average per quarter for the last 18 quarters has been $22.3m. And if you look at the combination of charter rates reported for modern VLCCs, which is $119,500 per quarter so far in the third quarter, it is slightly down compared to the $129,200 for the second quarter.

If you look at the Clarkson numbers for the third quarter but adjust it one month to compensate for expected time between fixing as it's reported in the market and actual loading when it will start accruing from an accounting perspective, and we combine that with the forward rates as quoted by Imarex for the remaining of the third and fourth quarter, this indicates a potential VLCC market in excess of $90,000 per day.

If this should happen, this would mean that the quarterly profit share for the third and fourth quarter may be in excess of $25m per share. Of course, the actual profit share is based on the actual earnings for these vessels in the respective periods. And as we mentioned earlier in the presentation, seven vessels of the Frontline fleet will be dry-docked in the third quarter and we expect that, of course, to also impact the profit share contribution in the period.

What this graph also illustrates is that, even when the average annual spot rates are approximately $12,000 below our base rate, there will be a positive profit share contribution. And this is due to several vessels and specifically most of the single -- remaining single-hull VLCCs and also the OBO carriers, which are sub-chartered out at levels above the base charter rate level.

If you look then at page number 16, we believe that we have a very unique order backlog. Typically, companies with a large order backlog have five to seven-year coverage. And as we see it, Ship Finance is in a different league with more than 13-year weighted average charter coverage.

The $6.5b fixed order backlog represents $90 per share. And if we subtract operating expenses, the EBITDA element of that would be in the region of $5.5b or $75 per share. These numbers are before any profit share contribution and also these numbers do not include any rechartering after the end of the current charter period.

So, then we turn to the last page in the presentation. We believe that the strong quarter has been very good and also fueled by a substantial profit share contribution. We had stable fixed rate charter revenues and we expect a substantial increase in the third and fourth quarter, when the West Polaris is included. We see a very good potential deal flow and the West Polaris transaction demonstrates our ability to structure accretive transactions for the Company.

That also means that we could increase the dividend on the back of that transaction. As we see it, with Ship Finance's risk profile, the Company can grow in all market cycles and in the current market we see an increased deal flow and very good access to transactions. We believe we are well funded to continue growing and also that we have access to capital.

And with that, we would like to open up for questions.

Thank you, sir. (OPERATOR INSTRUCTIONS). We now take our first question from Jonathan Chappell from JPMorgan. Please go ahead.

Thank you. Good afternoon.

Yes, hi.

Hi. Ole, the West Polaris being delivered this quarter looks like it is going to add significantly to the bottom line and I'm just wondering are there other rig opportunities out there, first of all?

And second of all, I know that you have a huge syndicate of banks. I know we've talked about in the past that lending is open to the right companies. But would you have to issue equity to fund the type of purchase price that these rigs are providing, even though the accretion is very large?

We of course constantly look at opportunities to grow our balance sheet in all segments. We think the offshore space is very interesting, also because we see that many clients have very substantial order backlogs and they are able then to pay off a very high charter rate in the beginning of the charters, as we did with the West Polaris, where we have an accelerated repayment which also takes down our exposure to the asset. So we think that type of transaction is attractive to us and, of course, we are continuously looking at opportunities.

With regard to the capital structure, I think -- our principal focus is to structure deals that are accretive to our distribution capacity. As we pointed out, also when we went through the liquidity overview, we still have sources of liquidity available, both now and also going into next year, that we can tap on.

And then, of course, it is also -- always a question what is your growth rate. From our perspective, I think we wouldn't -- if we had the right opportunities and we could structure deals that were accretive enough, we could well raise equity if we think that is beneficial for our investors. But our key focus is distribution per share. So, I think we are very open-minded.

Okay. You guys have a pretty good liquidity position versus a lot of the other players in the market right now. Are you seeing owners or shipyards coming to you with offers that may be viewed attractively because credit financing can't be achieved by some maybe speculative orders?

Of course, we see a very good deal flow and of course I think we will see more opportunities where owners have problems meeting their obligations and also are struggling to raise bank financing in the market. There hasn't been -- and we of course are positioning ourselves to take advantage of such opportunities. We haven't done many of these transactions so far but we are positioning ourselves to take advantage of them.

And that's also illustrated by the financing of the two container vessels, as we mentioned, the $58m that we are in the process of structuring which will add to our capacity.

Okay. Thanks a lot, Ole. Thanks, Lars.

Okay. Thank you.

Now, we move to John Parker from Jefferies. Please go ahead.

Hi. I just wanted to tell you your disclosure is excellent and it really makes it easy to analyze what is going on in this Company. Just one quick question, your profit share sensitivity. Wouldn't the higher expenses to Frontline for operating expenses, wouldn't that eat into your profit share calculation?

No. The profit share calculation is based on the time charter revenues the vessels are earning in the market, so that is calculated before Frontline calculates their operating expenses.

Okay. So (multiple speakers) calculation at all.

Of course, if the vessel -- yes, exactly. So, of course, if a vessel is in dry-dock, it is not generating revenues. And that of course impacts the basis for the profit share calculation. But not the actual operating expenses. That's Frontline's risk and it is not impacting our profit share.

Good. Now, I missed -- you said you have $154m in your current bucket for investments and finance leases that is going to be paid over the next 12 months. Is that correct?

Are you now referring to our cash position or --?

No, no, no, I'm sorry. Earlier in the call, you mentioned that in your other current assets, I think you said $154m was investment in finance leases in your current -- is that correct? I missed -- didn't quite hear you.

That is correct.

Okay, good. And any idea on the timing of the $58m of debt that you are going to take on against the containers?

No, we don't -- we do not give any specific timing. We are working on it. We just wanted to illustrate that and -- but as we are working on it currently, we of course hope to conclude that relatively soon. But we will not give any guiding whether or not that will be in place in September, but by the end of September or immediately after.

Good. After everyone's over their summer vacations, right?

Exactly.

The shipyard slots -- I'm sorry. The Suezmax is a very nice trade, obviously. I'm just curious, as you looked at that transaction, did you see -- did you also entertain offers for long-term charters or did a good deal come along? And I guess what you are thinking along the lines of we don't necessarily want to put more into this tanker space because we already have so much in it, or was it just this was a great offer that you couldn't refuse? What was your thinking going into that?

I think that -- of course, we have looked at several opportunities for long-term charters and that was our initial idea for lease vessels. But what we have seen recently is that, basically, the vessel values have moved up quite substantially over the last few months but we have not seen the charter rates, long-term charter rates, that we could obtain on -- move in parallel with that. So, certainly, we found now that it was much more attractive to sell them than to do a long-term charter.

Okay. So you could get better returns --?

That was the reason. And then, of course, the market was -- as we negotiated this, the market was very strong and we felt that it was an opportunity to take advantage of the strong market.

Okay. So you feel that you'll probably get better returns elsewhere with that cash?

That's correct.

Yes. And that is quite a lot of money and we would not have been able to get the same return by doing a long-term charter at that point in time. But of course, this will even out over time, but the $111m was an attractive price.

Yes, it was. Well, thank you very much. That's all the questions I have.

Thank you.

Thank you.

Now, we take our next question from Anders Rosenlund of ABG SC. Please go ahead.

Yes. Would you be comfortable taking on another, say, $1.7b worth of rigs on your balance sheet?

We are -- that all depends on the structure, of course. We have a quite substantial balance sheet today, so -- and we have recently -- if you look at our balance sheet currently, it is in the region of $3b and we are then adding on close to $900m when we take on that drillship deal next quarter.

I think, in terms of investing capacity, we have done $1.7b of deals in the last 18 months, so we have clearly demonstrated the ability to take on a significant volume in the past. And as we see the bank market still being there for our type of company, we think that we can continue growing the Company.

We will not give any specific guiding on numbers and amounts, but we think that the market is very attractive and we see many opportunities. So we want to grow the Company in a diligent manner, of course with a focus on increasing our distribution capacity.

You have previously commented that the tanker exposure -- or you've sort of indicated you had decided to diversify your exposure to different segments. How should we read that in relation to potential additional rig deals?

Well, I think you shouldn't really just expect a rig deal or offshore-related deal. You should also look at the other segments. What we have mentioned in the past is that of course, starting with, effectively, 100% tanker exposure, we are now down to around 50% tanker exposure and 50% other deals, which is then a mix of offshore which is then around 25% and 25% between dry bulk and container.

What we've said in the past has been that we, of course, intend to grow this pie and we believe that both offshore and container segments are segments that are attractive for us to grow in over time. Of course, we will look at it from deal to deal and of course it is more important for us to structure the right deals than necessarily put a deal in one category or another category. But as we see it, we see a very good growth potential for us in both these segments.

Over time, we also will grow in the dry bulk segment. But as we have seen it right now, we have been a bit reluctant to grow substantially in that segment. That is more based on the values we see there and effectively breakeven rates for long-term charters on deals in that segment.

Okay, excellent. Thank you.

Thank you.

(OPERATOR INSTRUCTIONS). We now take our next question from Andreas Stubsrud of Kaupthing. Please go ahead.

Yes. Thank you. Two quick questions. Number one, have you paid Seadrill the $850m this quarter or will that happen in the fourth quarter?

That was done in -- you can say that we have paid now about $600m, which was paid on delivery. As the operation starts and enters into the charter with Exxon, we will draw the last $250m of the loan. So the equity in the first $450m of the loan has been paid and then we will draw an additional $250m after it's finally accepted by Exxon.

Okay. And is it correct --?

There is no more cash going out. All the cash has been paid.

Okay. And in terms of the loan for that, the $700m loan for that rig, is it correct -- if you can comment it, is it correct that that is approximately 4.9%?

I'm not sure I got the question here.

Okay. The loan you have from the bank for the $700m loan you had from the bank, in terms of the information you have provided through the press releases in terms of paying $65m in debt -- repayment of debt and the other information, I calculated an interest rate of 4.9%. Can you confirm that?

No. I don't think that is correct. Because there was a base rate, but it's LIBOR plus 1.25. And then, of course, we had a base rate in the press release that went out but there is an adjustment there. So we have now swapped the loan and then there is an adjustment to the rate.

Okay.

But the net to us is the same, because all that risk is taken by -- the net amount that was announced in the press release is exactly the same but if you look at the -- sorry, yes.

Okay. So you will be able to pay the $23m or the deal will provide the $23m to the Ship Finance?

Yes. So, that's net, because all the interest rate risk was for Seadrill's account.

Okay.

And also, as an illustration there, if you look at the charter rate, the first three months in the original press release based on the original base LIBOR rate, that was announced based on $107,500 per day. After this interest rate has been swapped for the first five-year period, the charter rate that will be payable will be $120,500 per day. And that is increasing after the first three-month period. We announced then $330,000 per day, while they will pay on average for that close to five-year period in the region of $345,000. But that difference is really only going through the interest expense. So we will get a higher charter rate, but then we will also pay a higher interest rate in that period.

Because it is now -- it is basically swapped for the whole charter period with Exxon and --

Okay, so --

But the net to us is exactly the same.

Okay. So the net is the same for Ship Finance and Seadrill will pay $345,000 instead of $330,000?

Yes.

Yes.

Okay. Very good. Thank you so much.

Okay.

Thank you.

(OPERATOR INSTRUCTIONS). As we have no further questions, I would like to turn the call back to Mr. Hjertaker for any additional or closing remarks.

Thank you very much for participating at the Ship Finance International second quarter presentation. We hope that the results were in line with your expectations and we of course will continue focusing on growing the Company and building on the dividend capacity in the future. Thank you.

Thank you.

Ladies and gentlemen, that will conclude today's conference call. Thank you for your participation. You may now disconnect.