SFL Corporation Ltd (SFL) 2025 Q1 法說會逐字稿

Welcome to SFL's first quarter 2025 conference call. My name is Espen Nilsen; I'm Vice President of 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 Otto Sjølie will comment on vest performance matters, followed by our CFO Aksel Olesen, who will take us through the financials. The conference call will 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 results to differ, include, but are not limited to conditions in the shipping offshore and 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 1st quarter.

Thank you, Aspen. We are now announcing our eighty-fifth dividend and continue building our business as a maritime infrastructure company with a diversified fleet. We reported revenues of USD193 million this quarter, and the EBITDA equivalent cash flow in the quarter was USD116 million. Over the last 12 months, the EBITDA equivalent has been USD545 million. The first photos result was impacted by several one-off items, including impairments on some older dry boat vessels traded in the spot market, and also the drilling in Hercules being idle in the quarter. We therefore recorded a net loss in the quarter of USD32 million or USD0.24 per share. with a dividend of USD0.27 per share, we have returned more than USD2.8 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 USD10 million worth of shares below USD8 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 boat 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 USD34 million in aggregate, the actual cash on cash returns from the investments in these vessels have actually been quite decent, and in the 12 to 15% range on a leverage basis for two of the supermax bulkers we have agreed to sell. The reason is that the vessels were on high charters initially, but according to USA, we have had to amortize the vessels on straight line basis from you. For other assets like the container ships and car carriers, the charter-free values were around a billion dollars dollar higher than carrying costs at quarter end, so we have a significant buffer there.

The drilling in Hercules has been idle since the 4th 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 finding new employment for the rig and continue to explore strategic opportunities for the rigs in parallel, but it is difficult to give any guiding on 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 USD4.2 billion and importantly, more than 2/3 of this is to customers with 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 android portion on credit lines and also multiple unlevered vessels, which should enable us to continue investing in newer creative assets. And with that, I will leave the word over to our Chief Operating Officer Trym Sjølie.

Thank you, Ole. Our current fleet is made up of 79 maritime assets including vessels, rigs, and contracted new buildings. In April, we sold the supermarkets as for Yukon and in May, we will be selling the last of our two old 1700 TEU container ships, the Asian Ace. She is scheduled to be delivered to buyers later this week. Another supermax is also in the process of being sold. As previously reported Golden Ocean, the charter for our 8 capsized ball 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 USD4.2 billion and the fleet in Q1 was made up of 15 dry bought vessels, 38 container ships, 16 large tankers, 2 chemical tankers, 7 car carriers, and 2 drilling rigs. We have a diversified fleet of assets charted out to first-class customers on mostly long-term charters, and the 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 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 homo 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 fleet was about USD193 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. 6 vessels have been in 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 courtroom.

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 shipbuilding, 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 shipbuilding 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-US flagged vehicle carriers. So, of our 79-vessel fleet, approximately 27 will be affected by these flees 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 on 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 our charters.

On the energy side, the Linus rig earned USD20.3 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 3 months in the quarter. OpEx was USD12.2 million in Q1, slightly down from Q4. Subsequent to quarter end, the market index rate of Linus had been adjusted up by 2% from May 1st. The Hercules rig is currently worm stacked in Norway and being marketed for opportunities later in 2024 and 2025 and 2026.

During the first quarter, the rig recorded USD2 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 OE was approximately USD6 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.

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 USA and also that of extraordinary and non-cash items. The company generated gross charter hire of approximately USD193 million during the first quarter, with approximately USD85 million coming from our container fleet, including approximately USD1.7 million in profit share related to fuel savings on seven of our large container vessels. As in the previous quarter, revenue was impacted by scheduled dry dockings and efficiency upgrades on some of the large container vessels.

The car carrier fleet generated approximately USD25 million of gross charge higher in this quarter, including profit share from huge savings, which is slightly down from the previous quarter as one vessel underwent a scheduled dry docking during the quarter. Well thank you fee generated approximately USD43 million in gross charter hire, slightly up from the previous quarter, as all 5 tanker vessels acquired in 2024 and the first full quarter of revenue. As well as 15 rial vessels of which 8 are employed on long-term charters, the vessels generated approximately USD18 million in gross charter higher in the first quarter. The seven vessels employed in the spot and short-term market contributed with approximately USD4.4 million in that charter revenue compared to approximately USD7.2 million in the fourth quarter.

SFL owns two harsh environment-driven rigs, the Large Packet rig liners and the ultra deport the semi-submersible rig Hercules. The rigs generated approximately USD22.4 million of charter higher in the quarter. Our operating and SG&A expenses for the quarter was approximately USD78 million from approximately USD104 million in the fourth quarter, as operating expenses on the Hercules is reduced in the current form stacking mode compared to, in full operating mode when the rig is on contract. Going forward, we estimate operating expenses for approximately USD80,000 per day for Hercules in the current worm stacking mode, excluding potential upgrades. This summarizes to an adjusted EBITDA of approximately USD116 million compared to USD132 million in the previous quarter. We then move on to the profit and loss statement as reported on the US GAAP.

For the first quarter report, total operating revenues are approximately USD187 million compared to approximately USD229 million in the previous quarter. The contribution from our vessels was approximately USD171 million compared to approximately USD177 million in the previous quarter, but the risks contributed by approximately USD22.4 million, down from approximately USD54.9 million in the previous quarter, as surplus was idle in the first quarter. Vessel operating expenses in the quarter was approximately USD58 million, including USD10 million related to scheduled dry dockings, compared to approximately USD64 million in the previous quarter, including USD14 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 invest impairments of USD34.1 million relating to seven non-core driver vessels trading in the spot market. So overall, and according to USA, the company reported a net loss of approximately USD31.9 million or USD0.24 per share compared to a net profit of approximately USD20.2 million or USD0.15 per share in the previous quarter. Moving on to the balance sheets at quarter end, SFL had approximately USD174 million of cash and crash accumulates, in addition to undrawn credit lines in the amount of approximately USD48 million. In addition, the company had unencumbered assets with a market value of approximately USD187 million at quarter end.

The company has conducted share repurchases of approximately USD10 million and approximately 40% of these have been acquired by quarter end. During the quarter, the company paid that facilities in the amount of approximately USD47 million in addition to ordinary loan installments of approximately USD65 million. We also have vessel grades to relate to some of the large container vessel of approximately USD20 million during the quarter, most of which will be reimbursed to charter rate increases. We furthermore had remaining capital expenditure of about USD850 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 11 numbers, the company had a ratio of approximately 26% and to conclude. The board has declared the eighty-fifth consecutive cash dividend with a dividend of USD0.27 per share, we have returned more than USD2.8 billion to shareholders over the years.

We've also been 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. The chart backlog is currently USD4.2 billion and importantly, more than 2/3 of this is the customers with investment grade rating, giving us a unique cash flow visibility and resilience in the light of the current market volatility. Furthermore, our strong balance sheet and liquid deposition provides 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.

Thank you, Axsel. We will now open for a Q&A session. For those of you who are following this presentation through Zoom, please use the raise hand function under reactions in the toolbar to ask the question. When your name is called out, please unmute your speaker and ask your question. Thank you. And we will have our first question from Gregory Lewis. Greg, please unmute your speaker to ask your question.

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 dry dockings. I'm kind of curious as we look out over, the rest of the year, Q2, Q3, Q4, 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?

Hi Gregory. Trym Sjølie here. I think relating to the, your question on dry dockings and OpExs, we, this year is a very busy dry-docking year. I think we're looking at, I mean, some dates can move but up to sort of 17 vessels. Which in 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 drydock 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 on the dry-docking question or would you

No, that's super helpful.

Okay. Yeah, and maybe on the Hercules.

Well, we are both rigs, 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 remained 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 have to, 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 USD80,000 per day. To keep a rig like that warm, so it, it's ready to go out on very short notice.

We're also doing some upgrades on the rig to ensure that it's a very attractive rig in the market, but, the, 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, we, but at the same time, 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 down the road, but we cannot be specific on exactly when, yeah.

Yes, super helpful. And just following up on that, and the, 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, you're, 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, maybe there's a couple million dollars dollar impact OpEx or not or something even.

So Greg Axel here, absolutely correct. So I was assuming 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.

Yeah. You basically have to put more people on the rig, and they 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.

That's why I get the mobilization cost, yeah, effectively, right?

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 a creative deal, 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, you, 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, yeah, I'll stop there.

Yeah. Well, I think, there was a distinct difference between what you say February, early March, and what was it going into April with all the noise around the tariffs, and port fees and whatnot. So my, our sense is that particularly in April, Everyone in the market were a little hesitant because nobody could see he had visibility on what was actually going to happen in the various segments. And so basically across the board. High, higher uncertainty means that decision processes take longer. At the same time, the customers then, if you look at our core fleet and where our strategy is, which is long-term charters to Very strong industrial players, as we have like 2/3 of a backlog to investment grade companies.

These are not companies that are, that sort of live or die 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 discussion 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, around world trade and tariffs in particular, we hope that will, lead to more business, call it the executable business transaction. Also, alongside with that, you had a very hot year last year and the year before, on the new building side where shipyards, what it was say, kept rising 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 underdrawn 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, we always perform, it means that we think we have pretty good access to capital in for new projects now. And, that is, 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.

Super helpful. Thank you very much, gentlemen.

Yes, thank you.

All right, then we will take our next question from, and sorry if I'm mispronouncing your name, Clement Mula please unmute your speaker to ask your question.

Hi, good afternoon. 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 could you talk a bit more on the upgrades you're conducting and your expected cost?

Yeah, I'm sorry, upgrades to the Hercules specifically, you mean?

Yeah. Exactly.

Yeah. So what we're doing, as right as we speak, we are, when the rig is, idle or hot stack like now, for instance, we are doing some work on the flooring, which is effectively part of the claim, with seed drill that where we were awarded, to the money from seed drill, that's, one of the items there was that. The flooring in the living quarters there, was not, maintained as it should, and therefore it need, 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 USD100,000 expense to do that. But that is something that's, that we, hopefully when the seed drill court case is finalized in the end, that's part of money we will be effectively compensated for.

We 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, USD7 to USD8 million. We're also replacing some electric systems at the same time to make sure 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 coal stack, i.e., you leave it there and with minimal manning, if any, don't keep running the equipment and maintaining 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, quality 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 a legacy asset in SFL. We were never supposed to own and operate, or you call it never going to operate the rig. Sero, back in the day, they had a purchase obligation that was really a financing structure. So after two rounds of chapter 11 in Siro, we ended up taking it back.

We were awarded around USD48 million by a court, after we, sued them for, call it the lack of maintenance, that has been appealed. That case is coming up, next year. So, we believe we still, 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 expense legal fees along the way and have nothing in our accounts as cod value for that potential, court, final court award, when that, comes up. If we look at the other assets we have in our portfolio, which is really our 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, HapaLloyd, Volkswagen, K-line, and others.

That's very helpful. Thank you. I actually also wanted to ask about the USD35 million in remaining CapEx you mentioned, which is attributable to efficiency upgrades on the container ships. How should we think about the caddens for those?

As in when they will, I mean.

Yeah, exactly, so like when will you incur into the extend?

I think most of the costs remaining, which is for the container ships, it's around, I have to check it around USD18 million at the moment for the upgrades and they will be incurred in Q2 and Q3.

Thanks for that

And they will be on these vessels, particularly that we are talking about, they will be 100% covered by a rate increase in on the charter. And it also includes the offer that we incur due to the longer doc duration over and above a normal dry docking of about 15 days.

Makes sense. Thank you. And final question from me. The board decided to maintain the dividend despite the Hercules remaining OpEx. Could you provide an update on how you view the, let's say, long-term distribution potential and how do you balance that with share repurchases?

Yes, we, 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 layup and therefore associated costs, and no revenues for that rig for the long run. But we felt that it It was appropriate to mention that, if 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, 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 effectively overseen by the board. So, like the share buyback we did, it's around USD10 million. I mean, if you look at the dividend now, it's more than USD30. 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 USD8 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.

Thanks for the call and thank you for taking my questions.

Thank you. Right, before we go to Mr. Baldoni, I see we've gotten some questions in here, via text. So, the first question is, are container vessels still the preferred segment for building the contract backlog going forward?

Yeah, we look at many segments in parallel. We have a diversified, call it the market approach in the maritime space. So, we look at, we have, we look at container ships, that we have done, a few car carriers in the past. We're looking at tankers, we were looking at chemical carriers, and we're also looking at the gas carriers and, recently. So, I cannot guide specifically on that, but what's important here is 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 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 propellers, the increasing cargo intake, and all of that are bringing down the fuel, 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 cannot guide on specific segment allocation.

Thank you Ole. 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 so far? Your recent refinance debt still has a rather large credit spread versus your diversified long-term backlog and strong cash slash balance sheet.

Sure. Thank you for that. And you just observe, I think if you look historically, in terms of where we have in the margins we obtained in the market, I think, this in the 6 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, almost a price very competitively at least on the asset pack, the financing that we're achieving. Also, in terms of co profiles, covenants, etc. That are and also the partly guaranteed, the partly guarantees to do most of these facilities, so yeah.

And then we'll go to CJ Baldoni please unmute your speaker to ask your question.

Hi, good morning. Can you hear me, okay? Okay, can you, sorry, another question on the Hercules, how long can it remain warmed, warm stacked?

With the stacking, call it the methodology or the, you could say the stacking plan we have, on that rig, it can, 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. And but that's also, a reflection of the capital or the stacking costs that we are spending on the rig to ensure that it is remarketable. 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, this is something that we spent quite a bit of time on. Since it's a costly asset and, the stacking costs are relatively high.

Yeah, understood. I just for some reason I thought that maybe there was 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 recontract it.

You're you're absolutely right. We, what we have seen in the past, if you, we've seen companies who are dropped, who have, who have sort of what was called stacked the rigs, and then you're talking a matter of months before it's almost not remarketable and because 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 op operational issues, they would be very careful on taking in a rig where the system hasn't been maintained and run properly. We're working together with seed drilling here. They are the manager for us on the Hercules. The Rig has a very strong performance first, for Exxon in Canada, then for Gulf in Namibia, then back 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 all majors, because they know that, okay, this rig has been capped at the highest standards, 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 mothballed for a long period.

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 out a whole, so, can leave it at that, but thanks and then, so. You mentioned, the new build spend. I mean, most of the remaining USD800 million is going to need to be placed closer to delivery, or are there still more payments to be made?

No, yeah, I think the, remaining, I mean, so far, we paid approximately USD150 million last year. And then you have some additional pre-delivery installments starting at 12 months before each ship is delivered. So, starting in Q1 2027. Which we are in discussions with kind of various banks and financial institutions in terms of fully funding and we combination of course pre-delivery and then post-d delivery financing, yeah.

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, can you just elaborate on that?

On the fleet, we have 38 now Chinese built vessels. And then we have the car carriers that are knot, 4 of them are Chinese built and 3 of them are, sorry, 5 Chinese built and 2 knots. But all the car carriers are sort of and when we say impacted, we mean that they would be impacted by calling the US. So, and some of the vessels are exempt, like they can be Chinese built but below a certain size, like, small container ships or below 4,000 EU and bulkers below a certain size. So, when well, 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 are not really impacted because they're either not built in China, which is most of them, or they are smaller. So, 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 US calls, we will incur about USD26 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 charters will probably change their trading pattern slightly due to this. 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 US in general. We do not expect that though. And it's important to say that. It's, we look at this as charters cost, and the only thing that, and the thing that we are sort of looking at is how the fees will be handled in practice, I who have to pay them? Is it part of the clearance of the vessel into 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.

Okay. Great. Thank you for that. I appreciate it. That's all I have.

Thank you, then 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 webpage www.sflcorp.com. Thank you all for listening.