SFL Corporation Ltd

Welcome to SFL's second quarter 2023 conference call. My name is Marius Froehli, and I'm vice president for investor relations in SFL. We have a new format for the conference call this time using Zoom, and I hope this will be both as informative as usual and easier to navigate afterwards for you. Our CEO will start the call by briefly going through the highlights of the quarter. Following that, our Chief Operating Officer Trim Shirley will comment on vessel performance matters before our CFO Axel Olsen will take us through the financials. The call will be concluded by opening up for questions, and I will explain the procedure to do this before 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. 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 our risks and uncertainties, which may have a direct bearing on our operating results and our financial condition. Then, I will leave the word over to our CEO, Ole Ertaker, with highlights for the second quarter.

Thank you, Marius. The total charter revenues were $174 million in the quarter, which were down from the previous quarter, primarily due to the sale of four spot-threaded tankers earlier this year. Over the last 10 years, we have changed the business model from a maritime leasing company to maritime infrastructure with long-term time charters to end users. Only around 9% of our charter revenues were from seven bulkers and the container vessels employed on short-term charters and in the spot market. The EBITDA equivalent cash flow in the quarter was approximately $109 million in line with the previous quarter. And over the last 12 months, the EBITDA equivalent has been $480 million. The net income came in at around $17 million in the quarter, or 13 cents per share. The net income continues to be impacted by the drilling rig Hercules, which had no revenues in the second quarter, but with full operating expenses while finalizing its comprehensive special survey, or SPS, and upgrades. The SPS was finalized in mid-June, and we then started the mobilization to Canada. We have been paid the mobilization fee from Exxon for the transit, but due to US GAAP accounting rules, all of this will be recognized in the third quarter together with the mobilization costs. There was also a $6 million gain in the quarter relating to sale of the last spot traded Suezmax tanker. This is our 78th quarterly dividend, and over the years we have paid more than $2.6 billion in total and closing in on $30 per share. And we have a robust charter backlog supporting continued dividend capacity going forward. The announced dividend of $0.24 per share is in line with the previous quarter and represents a very strong dividend yield at current share price levels. Our fixed rate backlog continued to increase and stands at approximately $3.6 billion from owned and managed vessels after recent charters. This provides continued cash flow visibility going forward with significant additional cash flow from the drilling rig Hercules and the new built car carriers from the third quarter onwards. And importantly, the back book figure excludes revenues from the vessels traded in the short-term market and also excludes future profit share optionality, which we have seen can contribute significantly to our net income. The SPS and upgrade work on a harsh environment, Sebi submersible Hercules, was completed in mid-June, and the rig then moved under its own power to Canada to commence a contract with ExxonMobil Canada to drill one well, which started mid-July. Duration is estimated to approximately 135 days, including mobilization to and from Canada, and the contract has an estimated value of $50 million, implying a day rate of approximately $375,000 per day for the period. Thereafter, the RIG will move to Namibia and commence a contract with a subsidiary of GALP and Egea for two wells plus an optional well testing. Excluding optional days, the duration will be approximately 115 days, including mobilization, with an estimated contract value of another $50 million, implying a day rate of approximately $435,000 per day for that period. After Namibia, the RIG will move back to Canada to commence the recently announced contract with a subsidiary of Equinor. The contract is from one well plus one optional well. The duration for the firm contract period is approximately 200 days, including transit to and from Canada, implying a day rate of approximately $520,000 per day for the period. The RIG will then be open for new contracts from the fourth quarter 2024 onwards. The secured backlog on the Hercules is now in excess of $200 million, and we estimate approximately $100 million EBITDA from the rig over the next 12 months. This rig is one of only a handful harsh environment ultra deep water semi-submersible rigs available, and market analysts are positive to market prospects based on recent tender activity and the tight supply-demand balance. The harsh market prospects into 2025 is particularly promising, and we now see day rates in excess of $500,000 per day, as evidenced by our recently announced contract with Equinor for next year. This is up 50% from last year, and most of that goes straight to the bottom line. And we continue to renew our fleet and divest the world of tankers. We sold four tankers traded in the spot market earlier this year, and we have now sold the Landbridge Wisdom, which is the only remaining bareboat charter tanker in our fleet. This is a view to see on a relatively low bear bought charter rate, and the charterer exercised a fixed price purchase option, you know, a short while ago, where we will sell the vessel back to them later in August. The net cash proceeds is estimated to approximately $10 million, and book gain in the third quarter is estimated to around $2 million. In May, the board of directors has authorized the repurchase of up to an aggregate of $100 million of SFL shares. So far, around 1.1 million shares have been repurchased at an average cost of $9.27 per share, or just over 10% of the authorized amount, and there is $90 million remaining. Further purchases may be made at your discretion in the form of open market repurchase programs, privately negotiated transactions, accelerated share repurchase programs, or a combination of these methods. The timing and amount of any repurchases will depend on legal requirements, market conditions, stock price, alternative uses of capital, capital availability, and the company's determination that share repurchases are in the best interest of our shareholders and other factors. We see this as a tool in the shareholder value toolbox and would note that the company is not obligated under the terms of the program to repurchase any of our common shares. This fiber program is valid until June 30th, 2024. And with that, I will give the word over to our chief operating officer, Trim Shirley.

Thank you, Ola. Over the years, we have changed both fleet composition and structure, and we now have 73 maritime assets in our portfolio, and our backlog from owned and managed shipping assets stands at $3.6 billion. The current fleet is made up of 15 dry bulk vessels, 36 container ships, 13 tankers, two drilling rigs, and seven car carriers, where three are on the water and four are under construction in China. The new buildings are scheduled for delivery over the next 10 months, starting in September. We have evolved from having a single asset class chartered to one single customer to a diversified fleet and multiple counterparties. And the fleet composition has varied from originally 100% tankers via a majority of offshore assets 10 years ago to container vessels now being the largest segment with just under 50% of the backlog. We are now a maritime infrastructure company. Most of our vessels are on long-term charters, but we have over the last eight to ten years completely transformed the company's operating model and have moved away from financing type bare boat charters and instead assumed full operating exposure, which makes us relevant for large industrial end users like, for example, Volkswagen, Maersk, Exxon, and others. In the second quarter, 92% of charter revenues from all assets came from time charter contracts and only 8% from bare boats or dry leases. In addition to fixed rate chart revenues, we have had significant contribution to cash flow from profit share arrangements over time, both relating to charter rates and cost savings on fuel. Last 12 months, the aggregate profit share has been more than $25 million. Out of the current 73 vessels, we have 13 on variable contract and 60 on fund charter and spot trading. Our operation is quite complex with vessels across multiple sectors. We have our own commercial operation out of Oslo and operational management out of Singapore and Stavanger. Our OPEX philosophy is to continuously invest in our fleet to optimize the vessel's performance and maintain a high level of service to our customers. This includes investing to minimize oil fire, as well as investments to increase cargo carrying capacity and reducing energy consumption. This has become increasingly important with the implementation of IMO carbon intensity indicators, which will impact vessels' operational profile, including routing and speed. In Q2, we had a total of over 6,000 operating days defined as calendar days less technical or fire or a fire for dry docking. Our overall utilization across the fleet is 99.4% in Q2, a number we are continuously striving to maintain as high as possible. The charter revenue from our fleet was $174 million in Q2, and our OPEX in the quarter was $38 million. One of the key metrics for SFL is the reduction of carbon emissions by improving our fleet weighted average AER, or annual efficiency ratio. AER as a carbon intensity indicator is a measure of how carbon intensive our fleet is by calculating the emissions per actual capacity and distance sailed. By the Marple Convention, IMO have implemented requirements for reducing carbon intensity of all ships larger than 5,000 gross tons from 2023 onwards. The requirement to obtain an acceptable CII rating will be gradually stricter each year towards 2030. Such requirements can either be met by fleet renewal, increased efficiency of existing fleet, or a combination of both. Although CII compliance is certainly challenging, SFL is well positioned to manage IMO's trajectory towards 2030. As part of our fleet renewal program, we have four LNG dual fuel car carriers under construction in China that when entering into service will be among the most modern and efficient ships in the car carrier market. On the energy efficiency front, we have carried out an investment program for all vessels in our fleet, including energy-saving devices and technology to capture and analyze data from onboard sensors for real-time performance management and voyage optimization. Furthermore, we are cooperating closely with several of our key charters on further vessel upgrades. The scope includes exhaust gas scrubbers, cargo intake boost, hull modifications, new propellers and propeller fixtures, as well as enhanced anti-fouling systems. We also collaborate with key charters on data integration for more optimal weather routing and performance management. In addition to reducing carbon emissions, we believe these investments will make our vessels more attractive in the market when the vessels are either up for re-delivery or for potential charter extensions. And with that, I will give the word over to our CFO, Axel Olsson, who will take us through the financial highlights of the quarter.

Thank you, Trim. On this slide, we have shown a performance illustration of cash flows for the second quarter. Please note that this is only a guideline to assess the company's performance, and it's not in accordance with US GAAP and also net of extraordinary and non-cash items. The company generated cash flow gross charter higher for approximately 174 million in the second quarter, including approximately 2.2 million of profit share. There are approximately 92 percent of the revenue coming from our fixed chart rate backlog, which currently stands at 3.6 billion, providing us with strong visibility on the cash flow going forward. In the second quarter, the container fleet generated gross charter hire of approximately 90 million, including approximately 2 million in profit share related to fuel savings on seven of our large container vessels. The tanker fleet generated approximately 35 million in gross charter hire during the second quarter, compared to approximately 47 million in the previous quarter. Charter hire from our vessels trading in the spot market in the second quarter was 2.2 million, compared to 10 million in the first quarter, following the sale and delivery of the three remaining spot vessels during the second quarter. Consequently, we do not expect any contribution from tankers trading in the spot market from Q3 onwards, as all our remaining 13 tankers are employed on long-term contracts with high-quality charters. The company has 15 drivable carriers, of which eight were employed on long-term charters during the quarter. The vessels generated approximately 24 million in gross charter hire in the second quarter. Seven of these vessels were employed in the spot and short-term market and contributed approximately 7.2 million in charter hire during the quarter compared to approximately 4.6 million in the previous quarter. SFL owns two harsh environment trading rigs, the Jacob Rig Linus and the semi-submersible rig Hercules. The Linus is currently on a long-term contract with ConocoPhillips Scandinavia until the end of 2028. During the second quarter, the rig generated approximately 19 million in contract revenues in line with the first quarter. As in the first quarter, recorded operating expenses on Hercules, which were approximately 7 million. Furthermore, there has been no revenue from the Hercules during the quarter due to special periodic survey and upgrades, which were completed in mid-June before the RIG mobilized to Canada to commence the drilling contract with Exxon Canada. Although the Hercules commenced mobilization towards Canada in mid-June, we recorded no revenue in the second quarter due to US GAAP accounting standards for drilling service contracts, which recognized revenue only from the drilling commencement date. Accordingly, mobilization and demobilization revenue and cost for the exit contract will therefore be amortized over drilling days in the third quarter and recorded in the Q3 P&L. And finally, our three car carriers generated a gross charter hire of approximately 6 million during the second quarter, including approximately 200,000 in profit share related to fuel savings on one of the vessels. Our operating and G&A expenses for the quarter was 68 million compared to 75 million in the previous quarter. This summarizes to an adjusted EBITDA of approximately 109 million in the second quarter compared to 110 million in the previous quarter. We then move on to the profit and loss statement as reported on the US GAAP. As we have described in previous earnings calls, our accounting statements are different from those of a traditional shipping company. And as the business strategy focuses on long-term charter contracts, a large part of our activities are classified as capital leasing. Therefore, a significant portion of our charter revenues are excluded from USCEP operating revenues. This includes repayment of investment in sales type, direct financing leases, and leaseback assets, and revenues from entities classified as investment in associates for accounting purposes. So, the second quarter report total operating revenues, according to US GAAP, of approximately 165 million, which is less than approximately 174 million of charter hire actually received for the reasons just mentioned. During the quarter, the company recorded profit share income of approximately 2.2 million from huge savings, some for large container vessels and a car carrier. And while we recorded nearly a full quarter of operating expense on Hercules, we did not record any revenue on the rig due to its temporary yard stay. And as just mentioned, revenue from the Hercules were due to use gap accounting standards, we recognized only from the drilling commencement date, and has been reflected in our P&L in the third quarter. Furthermore, the net results were impacted by non-recurring non-cash items, including a gain from the sale of the Susmax tanker Everbyte of approximately 6.4 million. A net positive mark-to-mark effect of 1.9 million, a negative mark-to-mark effect from equity investments of 1 million, and a decrease of 200,000 on credit loss provisions. So overall, and according to US GAAP, the company reported a net profit of approximately 17 million, or 13 cents per share. While reporting on the transitional quarter, it's worthwhile to mention that we expect revenue to increase from Q3 onwards, as we will record a first quarter of revenue from the Hercules rig, following the commencement of the Ex-Im contract in July. Also, we expect revenue effect from our four-car carrier's new buildings to be delivered during the next three quarters. In addition, the new three-year charter for a two-car carrier's composer and conductor will commence in Q4 and Q1. Re-estimate EBITDA from these vessels to be approximately 47 million per year, a significant increase from existing contracts, which was approximately 9 million per year. Moving on to the balance sheet. At quarter end, SFL had approximately 201 million of cash and cash equivalents. Furthermore, the company had multiple securities of approximately 5.9 million based on market prices at the end of the quarter. In June, SFL was notified about the purchase option on a VLCC unbearable charter with redelivery to take place at the end of August. A 10 million positive cash effect is expected after repayment of the secure debt relating to the vessel, with a corresponding book gain of approximately 2 million to be recorded in the third quarter. In May, the company announced 100 million shares back program. So far, the company has acquired approximately 1.1 million shares at an average price of approximately $9.27 per share. During the quarter, SFL refinanced the drilling rigs Hercules and Linus in two separate loan facilities, with 150 million per rig. The refinanced Hercules and Linus loans have matured in the fourth quarter of 2025 and in the second quarter of 2026, respectively. Furthermore, the company arranged two yokels for two existing vessels, the car carrier Arabian Sea and the container vessel Maersk Pelopas. Financings are secured at very attractive rates with matching maturities that match the long-term charging contracts and have a net positive cash flow effect of more than 80 million in the second quarter as the vessels are debt-free. The outstanding capital expenditure of 194 million on four car carriers under construction, of which the first vessel is expected to be delivered during the third quarter, has been secured through YOLCO arrangements. And during the second quarter, we drew down 33 million on a pre-delivery facility with respect to the two last car carriers under construction The remaining capex to be paid for a special periodic survey and upgrades on the Hercules, which now is completed, will be funded with cash on hand. And the same goes for the outstanding amount of approximately 48 million of the knock-bone maturing in September. But based on the Q2 numbers, the company had a book equity ratio for approximately 27.6%. Then to conclude, the board has declared a cash dividend of 24 cents per share for the quarter. This represents a dividend yield of approximately 9% based on the closing share price yesterday. In May, the company announced 100 million share buyback. And so far, the company has acquired approximately 1.1 million shares. for a price of approximately $9.27 per share. Our fixed chart rate backlog currently stands at 3.6 billion, which provides us with strong visibility on the cash flow going forward. The latest financing facilities concluded the company's new billing and capital expenditure program is now fully financed, material to all of the short-term debt is refinanced with new long-term loans. In summary, SFL has secured new financing arrangements so far in 2023 in excess of $1 billion. The amount is split across 12 different facilities and a wide array of products, securing a continued well-diversified funding platform for the company going forward. Furthermore, the recent contract awards for two car carriers on contracts with Volkswagen, with commencement in Q4 and Q1, we estimate the EBITDA from these vessels approximately 47 million per year, a significant increase from existing contracts, which is approximately 9 million per year. Finally, we announced a new contract award for a harsh environment semi-submersible drilling with Hercules, confirming a tightening supply-demand balance and a strong market outlook, which is now materializing in attractive day rates and a strong cash flow generation. And with that, we conclude the presentation and move on to the Q&A session.

Thank you, Axel. We will now open up for a question and answer session. For those of you who are following this presentation through Zoom, please use the raise hand function to ask a question. When your name is called out, please unmute your speaker to ask your question. Thank you. And we will have our first question from Richard Diamond. Please unmute your speaker to ask your question.

Yes. Good afternoon, everyone. Given the lack of shipyard capacity and rising ship values, is it fair to assume that purchase options in general will represent in the future significant value to SFL shareholders?

Well, yes, because with the new building prices coming up, they're very substantial, both on the back of the full order book at the shipyards, where they now also start to actually make a little bit of profit instead of losing a lot of money, as they used to do. You also have inflation in both the raw material costs that goes into building the ship and, of course, labor building it, which means that when you own a ship, typically it's secondhand values over time will be linked to new building prices. So if we had sort of the old model where we were just sort of a financial leasing provider in the shipping space, we would typically have to give away purchase options in order to do deals. That's what most people do when they are in that game. And then, of course, there is a higher probability of those purchase options being exercised and therefore called away from us. So the good example here, we think, is the two existing car carriers we have. if they had been on a more financial lease, you know, the charterer would have exercised those purchase options, but instead now we can recharter them at a much higher rate than we had in the first charters, and that is, of course, goes straight to the shareholders. So I think rising new building prices is definitely benefiting existing shareholders.

Thank you.

Thank you, Richard. We will take our next question from Clement Mullins. Please unmute your speaker to ask your question.

Hi, Oli and team. Thank you for taking my questions. I wanted to start by asking about the West Linus, which is employed on a contract earning a market-adjusted rate, which, if I remember correctly, is adjusted semiannually. How should we think about the vessels contribution going forward, given the strengthening market environment?

Thank you. So that is correct. So the line is on our contract with ConocoPhillips until the end of 2028 on the ecofisc field on the northern side in the North Sea. As you correctly point out, the contract is adjusted semi-annually, basically end of April and end of October. Day rate is around just shy of $200,000 per day. For the time being, that market is still somewhat kind of neutral. So going forward, at least we expect the day rate to stay in that region for the time being. But we also expect over time activity on the Norwegian continental shelf to increase and that could potentially then reflect in a higher contribution from the rig.

Thanks for the call. I also wanted to ask about the carriers to be delivered over the next year. Could you provide some commentary on the cash flows those vessels are expected to generate? And secondly, is the incremental debt to be drawn down to finance the vessels hedged?

Right, the... I haven't heard much about this conclusion.

So the cash contribution for the new buildings is considered substantial, I would say, especially for the first two vessels coming, where we will have an initial voyage there.

But I think... So...

Well, yeah, I mean, we do not disclose sort of contribution per vessel on an individual basis. So as Trim was pointing out, first, you know, as the delivery, first, we will have a voyage from Asia to Europe. where the vessels will then be delivered to Volkswagen. You know, the spot market for car carriers right now is super hot. So we will have a very, hopefully very significant contribution on the voyage from Asia to Europe. Market is currently quoted well in excess of $100,000 per day. So with an OPEX of around $6,000 per day for similar for vessels like this, you know, needless to say, there's a lot of cash flow coming there. And then they will commence the 10-year charters at the pre-agreed charter rates. And that's also when the new charter rate will kick in on the existing vessels. So we have several sort of elements coming in, but we haven't provided full breakdown of that. But what we do have and give everyone access to who wants it is our full charter backlog, where you can back out effectively the charter rates that are being generated by the vessels, also including the new bills.

Exactly. So basically, if you look at our strategies, then to fix out these vessels on long-term charters, we're going to call it a low-teens return on equity, so the contribution will be accordingly. And for the financing, of course, that is fully financed. That will be drawn down on the two first ones in connection with pre-delivery. And the financing is form of Japanese operating leases at very attractive terms. I do not go into exact details on that. But of course, the margin provided is extremely attractive. So the blended financing is attractive. is going then to be fixed upon delivery. And all in, considering kind of the long-dated financing, it's far more competitive than you find in a traditional banking market.

Makes sense. Final question from me. Looking at the second half of the year and into 2024, it's clear that your cash flow will improve markedly. How should we think about potential dividend raises going forward? And secondly, how do you plan to balance that, so potential dividend raises with share repurchases?

Yes. I mean, we, of course, see both as, you know, shareholder, returning capital effectively to shareholders, direct and indirect. Our aim is, of course, and everything we do is focused around, you know, building the distribution capacity to shareholders. But we never communicate or never give sort of guidance on what the dividend will be next quarter or quarters after that. But typically, when we've seen in the past, usually when we increase dividends, we manage to stay there. And also the board, you know, an important piece of the board deliberations around the dividend every quarter is the long-term sustainability of the dividend level sort of being discussed. You're correct. Third quarter onwards, we'll have significantly more cash flow, hopefully, than first and second quarter. That's primarily due to one rig being out of service with costs being incurred and paid, and that rig is now back working, and then we get the new bills. but we kind of guide you specifically on what the dividend might be next quarter and after, nor will we communicate specifically how many shares we will buy back. We have bought back just over 1 million shares, so around 1% of the shareholding, and we have an authorization to buy more than that from the board. And that will be communicated every quarter as we report our quarterly numbers going forward.

Makes sense. That's all from me. Thank you for taking my questions. Thank you. Thank you, Clement.

Our next question comes from Arif Hamid. Please unmute.

Yes, hello. First, I'd like to compliment the management team on continuing to do a good job. I have two questions and a request. Okay, the first question is, you've reduced some inventory and certainly have cash to reinvest. What areas appear attractive now, both for new builds and for used assets?

Yeah, we are looking, I mean, we are, you could call it segment agnostics, you know, so we focus across the board in the maritime space, which is also reflected in our vessel mix. We look at transaction opportunities in all these segments, you know, in parallel. And, you know, just as an example, last year, we screened and properly modeled out, you know, transactions, you know, with an aggregate value of around $23 billion. And we ended up doing only a small fraction of that. You know, that's a coincidence. And, you know, there are many reasons for why you don't do a deal. You know, it's got to be the right counterparty with the right asset. You know, we are very mindful of sort of the... of new fuel and, you know, and what we say, where that is driving and what kind of assets we want to own long-term. The financing we think is available for the specific asset with the specific charter, et cetera. So that, and of course we are greedy and we want proper returns as we do deals. If we hadn't been, if we would accept really low returns, we could have done, of course, a lot, lot more. So all this comes together, and it's all about trying to deliver long-term value for shareholders. And we don't guide on specific allocation of capital between segments. So over time, you've seen that, and sometimes we were investing more in the energy space, and other times, you know, over the history of the company, we have invested more on the liner side, specifically container ships and also car carriers. So we hope to build the business, but exactly which segment, we cannot say. I would say, maybe to round off that, is that some of the segments, there are relatively fewer long-term chartering opportunities. For instance, on the tanker side, on the dry book side, they're not that frequent to see long-term charters, which we prefer, because that gives us the cash flow visibility. But we find deals there as well, as you can see from our portfolio. So we look across the board.

Okay, so there's no specific area that looks like a good trend right now?

No, I think if you talk to shipping analysts, they typically focus on just the near term, call it market cycle. And there, of course, you have like the tanker market right now, near term, which has sort of a record low order book, which is on many people's sort of attention right now. But of course, when we do a deal and say we look for 10-year charters, you know, you have to look through the near term cycles. So if it goes to 10 years, you can, in theory, you know, build as many ships as you want in any specific segment. So then it's more important to look for the right technology, the right counterparty, and the right structure where we end up with a residual asset exposure or value that we think makes sense at the end of the charter, in addition to taking in the counterparty risk, et cetera, in the charter. And I would say the way we have read on our business model, going from a more financial-oriented company where we did a lot of beer boat and beer boat-like structures, that is typically done with intermediaries who then give service to the end users. So changing that to a more integrated maritime logistics type setup, means that we deal more directly with end users. And we think that also gives us better risk reward operationally and over time.

Okay, well, that selectivity in your acquisitions, that's part of the reason for my compliment at the beginning. Okay, my next question is, you talk about income, cash flow increasing substantially in the next couple of quarters. Can you make an estimate of how big a jump you see in the operating income?

I think we try to guide somewhat, but I don't really like to be really too specific on quarter by quarter in advance. I think what you'll see in Q3 is that you'll see contribution from the Hurtless in particular. As we guide, the accounting for that rig will be according to service contracts for basically take that over the actually kind of start a commencement of the drilling, just the drilling period, including mobilization, demobilization, also the costs. So that will also be a bit bumpy quarter to quarter going forward. Then in Q4, you'll see basically the First car carriers contribution coming in, same in Q1. So it can be kind of building up, I think, into Q1. And then Q2, you'll see the full contribution from the rig and the car carriers. So it looks promising, basically. I mean, everything is locked in. There's no more spot contribution on the tankers, somewhat on the dry bulk, but that's kind of marginal. But I think it looks solid, yeah.

And if you look at the charter rates on the drilling rig, I mean, you know, the first charter is around $375,000 or so per day. And then the recently announced charter is in excess of $500,000. And most of that goes straight to the bottom line. So that will have a good effect. But that, of course, is over time and well into next year.

Yeah.

Okay, that all sounds great. So what it sounds like is for the next quarter, there might be a modest jump, but this will steadily increase. And by the middle of next year, we might be looking a lot better. Is that right?

I think instead we'll be building up step by step.

But I think it's fair to say that I think third quarter will be significantly up from the second quarter because in the second quarter we had that drilling rig out of service, so zero revenues, but then with costs.

But you have some costs you're sitting on for the next quarter, right?

Oh, yeah. So we still have some costs into next quarter, but then we also have the revenues from the rate. Yeah, I know.

But that's what I'm saying is you have costs that you couldn't book in this quarter. So you're going to book them next quarter. So the revenues won't be as good.

It's only 14, approximately 14, 15 days from the second quarter that they're being transferred into the third quarter, so not too much.

Okay, that all sounds great. Okay, I have one request, and that is I know when you do a deal, you don't usually disclose the details, but what would be very helpful is, would be to know what the change in the cash position of the company is once the deal has closed or what the new cash position of the company is. So if you could consider giving that information out when you announce a deal, that would be helpful.

Absolutely. I think what we do today is we do it on a quarterly basis. And I think one of our strengths as a company is to turn around quickly and close transactions. And sometimes we use cash on balance just to close out the transaction. And then in order to find optimal and the best possible price financing, we do the financing later. So that will be quite accurate, actually. to report at that closing. So I think we tried to be very kind of open on the quarterly basis. And I think that's, I think what was feasible for a company like SFL.

Okay. Sounds very good. And what I just wanted to say is last time, last quarterly announcement or presentation, the sound was terrible. And here on Zoom, it's fine. So thank you very much for that. And thank you for taking my questions. Bye-bye. Thank you. Thank you.

Thank you. Thank you, Arif. Our next question comes from the line of Christian Weatherby. Please unmute to ask your question.

Yeah. Hey, thanks guys. Thanks for taking the question. So I actually had a question on the container side. So curious to get a sense of what you're hearing from your customers, just as it pertains to overall demand in the market. I know obviously charters are going to give you some insulation from fluctuations in the spot market, but just general thoughts on peak in terms of utilization of the vessels. And then, you know, anything that you can kind of think about in terms of that market, we've seen spot rates on some of the trans pack business begin to inflect a bit higher and I'm curious if there's any discussion of potential stabilization in that business over a longer-term perspective, or if you think this is a bit of a blip before we were to see more capacity come online out of the new building programs across the industry over the course of the next several quarters.

It's difficult to... to be very precise on what chakras see. But in our discussions and from the utilization of a fleet, we see that the utilization is high. There is no weighting on any of our ships. On the container side, all our chakras are looking to invest in our ships. together with us. And that has to do with the type of ships that we have as well. Of course, not all sizes are the same. But of course, in the sort of big feeders to large, 10,000 to 15,000 TU ships, seems to be really the bread and butter for the lines. And so from our discussions, there is definitely no no panic or any sort of big worry that we hear about. Things seem to be, they all seem to be looking forward, not, and even if the rates, the box rates have fallen, that is an issue. The volumes, at least from what we see here, are very healthy. And so I think what the container lines are looking at, I mean, they're not really so focused on ships What they are focused on is logistics. And they are not really shipping companies anymore. So they are looking at lowest cost per container carried and to get the carbon emissions on the coast down. And we believe that owners that can help them do that are in a good position. And that is becoming... really more and more important, especially from the likes of Maersk and Hapagloy that are big with us. We see that that's their focus, really.

Okay. That's very helpful. I appreciate the color and time. Thank you very much.

Thank you. Thank you, Christian.

I have one more question if I could briefly ask.

Jump in, Art.

It has to do with a change in law in Bermuda corporate law. I'm just wondering if that's going to affect the company at all.

I assume you're referring to the OECD kind of global taxation, or is it?

I read just recently that they're proposing a change. It could be what you just said, but I'm not sure. It's definitely about corporate taxation.

Yeah, I'm not sure that I think that's a global initiative and certain kind of thresholds to meet that. I don't think we are kind of at that threshold yet. I think many shipping companies are also under different tonnage tax structures. So that's, of course, a possibility. And some of our fleet is already under that in Cyprus. So So management and the board is evaluating and following that closely.

Okay, thank you.

Thank you again, Arif. As there are no further questions from the audience, I would like to thank everyone for participating in this conference call. If you have any follow-up questions to 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 very much.

Thank you.