Good day, and thank you for standing by. Welcome to the Q1 2022 SFL Corporation Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand over the conference over to your speaker today, Mr. Hjertaker. Please go ahead, sir.

Thank you, and welcome all to SFL's first quarter conference call. I will start the call by briefly going through the highlights of the quarter. And following that, our CFO, Aksel Olesen, will take us through the financials, and the call will be concluded by opening up for questions. Our Chief Operating Officer, Trym Sjølie, will also be present for 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 U.S. 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. 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 with the Securities and Exchange Commission for more detailed discussions on our risks and uncertainties, which may have a direct bearing on our operating results and our financial condition. The announced dividend of $0.22 per share is an increase of 10% over last quarter's dividend and represents a dividend yield of around 8.8% based on closing price yesterday. This is our 73rd quarterly dividend and over the years, we have paid more than $28 per share in dividends or nearly $2.5 billion in total. And we have an increasing fixed rate charter backlog supporting continued dividend capacity going forward. The total charter revenues…

Thank you, Mr. Hjertaker. On this slide, they've shown a pro forma illustration of cash flows for the first quarter. Please note that this is on a guideline to assess the company's performance and is not in accordance with U.S. GAAP and also net of extraordinary and noncash items. The company generated gross charter hire of approximately $166 million in the first quarter, including $4.5 million of profit share with approximately 85% of the revenue coming from a fixed charter rate backlog, which currently stands at $3.6 billion, providing us with strong visibility on a cash flow going forward. In the first quarter, the liner fleet generated gross charter hire of approximately $88 million, including approximately $4.4 million in profit share contribution related to fuel savings on some of our large container vessels. Following the company's recent acquisitions and charter extensions, vessels liner fleet backlog increased approximately $2.5 billion with an average remaining charter term of approximately 5 years or 7.7 years if weighted by charter hire. A small container vessel, which has been on a hire purchase arrangement during the last 5 years, was delivered to the buyer subsequent to quarter end against a total purchase price of $13 million. SFL expects to record a gain of approximately $12 million in the second quarter, the vessel was debt-free. In the first quarter, SFL had a fleet of 16 crude oil, product and chemical tankers, with the majority employed on long-term charters. Our tanker fleet generated approximately $30 million in gross charter hire during the quarter compared to $17.5 million in the previous quarter as additional Trafigura vessels joined the fleet. The net charter hire from the company's 2 Suezmax tankers employed in a short-term market was approximately $2.3 million compared to $3.1 million in the previous quarter. Subsequent to…

[Operator Instructions] And the first question comes from Greg Lewis from BTIG.

I did want to talk a little bit about the fleet management and how we should be thinking about additional potential asset sales. I believe the smaller -- what was that I think a feeder, intermediate container ship, there was a purchase option on that, which was exercised. As we look out over the next -- and correct me if that's not right, as we look out over the next handful of quarters, is there any way to think about other potential vessels that may have those options attached, just given the strength in the overall market that probably a lot of those will get exercised if there are any.

Yes. Greg, this is Ole. Yes, we have some, call it, older, I would say, sort of smaller midsized containerships. One was just chartered for another 3 years with Maersk at a fairly high rate, reflecting the current market. We have 1 more that will come open and will be available for chartering again in a few months. No options relating to either of those 2 assets. We also have a couple of older 4,100 TEU vessels and 5,800 TEUs. Those are on and have been on long-term charter to MSC which -- and they have been effectively structured, you can call it as hire purchase type deals. And therefore, we don't haven't really got that, call it, market exposure. I think I would be very, very surprised if those options were not exercised, but that was also the design at the time. But if you look at the assets where we have more capital at risk, you can call it, that's predominantly on the larger ship -- container ships from 9,000 and up, and they're all built from 2013 onwards, which means that they are all the new generation electronically controlled engines and designed after the financial crisis, which means that they have a configuration that we believe will be long-term viable in that market. There, on those vessels, we have the first coming off for rechartering in -- potentially in '24, but there are extension options at similar levels. And -- and based on where we see the market and where we see replacement costs for assets and even if you adjust for a new vessel being marginally more efficient than any sort of vessel on the water, we think that there is a very high probability even in a more normalized market that those charters will be exercised, which means that we will take those charters then effectively out through well into '25 and some of them all the way into 2028. So I think generally, we have very long charter coverage on our larger, call it, significant container ships. And particularly now when we chartered the 4 -- sorry, the 6 14,000 TEU forward starting '23, '24 and fixed them all the way through to '29.

Okay. Great. And then I'm not as familiar with the car carrier sector. I mean clearly, the contract with Volkswagen is great. As we try to think about that opportunity, right, I mean, like for us, like we look at global trade, we can kind of see the strength in the container market. As you look out at like the car carrier sector, is -- are there opportunities in that market to continue to find and deploy capital? I'm just not -- like I said, I'm not really familiar with that. It seems like a great sector for you guys. It's a little bit -- there's only a handful of vessels in there. But is that an area where like there could be opportunities to continue to deploy capital there? Or was that just kind of like a couple of niche one-off projects where you were able to step in and set up some good contracts. Trym Sjølie: It's Trym Sjølie here. Well, the car carrier market is very interesting for us, as you say. It's a market where SFL has an edge, I would say. You can typically -- I mean the operators have an industrial view and they have long-term fleet planning. And there is a huge space there now for fleet renewal. You have all the ships being sort of redundant due to new emissions regulations coming in, where they either have to be replaced or where they have to reduce speed quite drastically in some cases. The fleet today is about 700 vessels in total, and there's quite a big number of those. I think at least a couple of hundred ships would have to be sort of built in the next 5, 6, 7 years, just to replace the current fleet. So we see as quite interesting. So the challenge is finding the right vessels, the right new building slots and the right counterparties, but we feel we have a nice share.

Okay. Now that's great to hear. Yes. Like I said, more of the -- just not as familiar with the car carriers, so like to have any color around that. It's always super helpful. And then I did want to touch on the offshore rigs. I mean, clearly, the West Linus is on long-term contract in a very attractive position. But I was kind of curious how maybe we're thinking about the West Hercules, what I -- it looks to me that asset prices are firming for that type of rig. Like is -- how is the company -- is there opportunities to monetize that? Or is it really we're just working with our -- using our rig relationships to try to find that rig at home and get it on contract. And then once it's on contract, maybe then we could revisit maybe potentially monetizing that asset?

Yes. It's a good question. We -- our focus on that rig is to recontract it. We have hired Odfjell Drilling who is I would say, world leader in harsh environment operations. The rig is one of very few rigs that can work in Arctic conditions through the winter, which is quite unique. And then we have a market dynamic right now where we -- where I think a lot of the players and all companies realize that it's been a fundamental underinvestment in the segment for a long time. And we see an energy squeeze, I would say, particularly in Europe, who has been so reliant on gas -- natural gas from Russia now needing to source that from elsewhere. And of course, the North Sea is very close. There are lots of pipelines, but you need to do a lot of drilling to get that production going. So that's just one area. We also see a lot of, call it, focus on deepwater. It could be deepwater of Brazil, deepwater West Africa where that rig also would be fully compatible. You wouldn't utilize, call it, the winterized sort of features of the rig, but it would still work perfectly well also in normal sort of harsh environment type areas. So I think it's a rig with a lot of flexibility. I don't think this is the time to necessarily sell that rig, if that that's what you alluded to. I mean our focus is cash flow and get it contracted and build backlog also on this unit. And we are, of course, encouraged by the strong oil price and the fact that we finalized our negotiations with Seadrill in February and then as we all know, oil prices topped 50% after that. So market has changed quite dramatically over the last few months.

And the next questions come from Chris Robertson from Jefferies.

Congratulations on a lot of positive developments here. I just had a question related to the Linus. On the $500 million in revenue backlog that you talked about, how sensitive is that to the market index rate? And can you kind of talk around that?

Absolutely. I mean that was basically based on the market index rate at the time. We currently have bareboat rate with Seadrill during the transition period, where Odfjell is applying for a DOC, which is applicable on the Norwegian continental shelf. I think if you look at the market rate development, going forward, that is positive, and it's also supported by recent fixtures of same type designs from -- by Maersk drilling to Aker BP on 5-year deal. So as you see kind of that market index rate potentially increasing going into '23 and '24. That will, of course, have a positive impact on kind of the backlog number.

Okay. That's fair. Then on the Hercules going into special survey, how long do you expect that will take? Will that commence during the first quarter of next year? And how long do you think it will take before I guess it's secured on a new charter after that?

In terms of -- I'll start with the timing of redelivery from Seadrill. I think that's currently estimated to this end of the fourth quarter. Exact date is still to be confirmed. Then we are doing the necessary preparement with Odfjell Drilling for the SPS. I think base case, I mean, we will kind of assume about 90 days for the SPS. And then we are currently now marketing the rig for various employment opportunities and an exact commencement date is not confirmed yet. I think what I can comment on is that if you look over the last couple of months, the tender activity has increased significantly, both in kind of the harsh environment area, but also potential worldwide operations. But our focus, having I think, first-in-class exploration harsh environment rig is to kind of keep the rig in kind of Norway, potentially Canada or U.K. sector.

And then with respect to the current deployment in Canada, it just started drilling a couple of days ago. And therefore, we will not know until the first well in that program of offshore Canada is drilled. We don't know exactly how long time it will take to finish the rest of the work. And therefore, we have to await that before we can sort of be very specific on timing for when we -- when the rig will be redelivered in Norway and therefore, when the SPS process can start. But it should be around year-end. At least that's our expectation. And this is also -- has also some bearing on sort of, call it, contract discussions we have for employments after redelivery after SPS.

Okay. I guess my follow-up question to that would be the travel time from Canada to Norway, and then if it's redeployed back into Canada, what the travel time would be.

I think that somewhat depends on the weather. I think that could be 2.5, 3 weeks, give or take, kind of in normal circumstances, but the rig will be at least on the base case now being we're kind of finalizing operations in October. At that time, kind of the weather in the North Atlantic can be a bit choppy. So I mean it all depends, I think it's approximately estimated 3 weeks kind of transfer back to Norway.

And the next question from Richard Diamond from Castlewood Capital.

Yes. Ole, I have 2 questions for you this morning, 1 is philosophical and 1 is directional. And on the philosophical question, in certain segments, such as dry bulk, could we potentially be entering a super cycle given the lack of new building, the restructuring of trade routes such as coal coming from Australia to Rotterdam, et cetera, et cetera? And the second question is, looking forward, what areas do you think are the most interesting to allocate capital in the future?

Thank you, and thanks for calling in. Yes, I would say the dry segment, it looks very interesting. I would say both the dry segment and also the tanker space. I mean, in both segments, you have sort of what you see historic low order books, at least in recent history. I think for tankers, you have to go back 20, 25 years to see similarly sort of low order books. And as we all know, the shipping market, in general, has always been heavily influenced by owners sort of destroying their own markets, i.e. when market seems reasonably good, everybody runs out and orders vessels. And when those vessels are finished at the shipyard, there are suddenly too many vessels available and the market crashes. A good example of this was how the dry bulk market worked in several years after the ordering boom in 2014, where you had a consistently nice high growth in demand, but they were just ordered way many more vessels, and therefore, it took several years to catch up. As you point out, you have the yards basically full for -- if you want to order at least series of vessels, you're not talking late 2025 and into 2026 to get them delivered. So in either of the dry bulk market and also the tanker market, if you really want to sort of order a series of vessels, you have to wait quite a long time. So -- and in the meantime, of course, it could be a very interesting market, given that there is a lack of supply. Also, what could impact the market going forward from 2023 is the new CII regulations that would potentially limit or reduce the ton mile capacity because order vessels, less energy-efficient vessels, may have to reduce…

Thank you very much for your questions. I will now hand back the call to the speakers for the closing remarks.

Thank you. Then I would like to thank everyone for participating in this conference call and also thank the SFL teams on board the vessels and on shore for their continued efforts in delivering value for our stakeholders. If you do have any follow-up questions, 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.

This concludes today's conference call. Thank you for participating. You may now disconnect.