Q2 2019 Earnings Call
Welcome to your conference call. Please continue to standby the conference will begin shortly.
Greetings and welcome to the second quarter 2019 ship Finance International Limited earnings Conference call. At this time all participants are in listen only mode. There will be a presentation followed by a question and session, which time if you wish to ask a question you'll need to press star one on your Tele side I must advise you. The conference is being recorded today Tuesday that when she said August 2019.
I would now like turn the conference over to your first speaker today Uli, yet <unk> CEO . Please go ahead.
Thank you and welcome all to SFL second quarter Conference call with me here today, I have our CFO oxide, well listen I'm Senior Vice President Andre.
I will start the call by briefly going through the highlights of the quarter and following that Mr. All this and it will take us through the financials and the call we'd be concluded by opening up for questions.
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 1994.
Well its such as expect dissipates intends estimates or similar expressions are intended to identify these forward looking statements. These statements are based on our current plans and expectations and it was the risks and uncertainties that could cause future activities and results of operations to be materially different from those set forth in the forward looking statements.
Important factors that could cause actual results to differ include conditions in the shipping offshore and credit markets for further information. Please refer to assess else reports and filings with the Securities and Exchange Commission.
The board has declared a quarterly dividend of 35 cents per share. This insourcing, the second quarter with profits the dividends and the dividend represents $1.40 per share on an annualized basis, well nearly 11% dividend yield based on cross closing price of 12 82 yesterday.
Over the years, we have paid nearly $26 per share in dividends for more than 2.2 billion in total and we have a fixed rate charter backlog of 3.7 billion, which should support continued dividend capacity going forward.
The total charter revenues was $152 million in the quarter with 90% of this from vessels on long term charters at 10% for vessels employed on short term charters and then the spot market.
The EBITDA equivalent cash flow in the quarter was approximately $121 million last 12 months. The EBITDA equivalent has been approximately 492 million.
The reported net income for the quarter was approximately 28 million or 26 cents per share.
This was softer a noncash impairment of $8.2 million relating to a source to osha claim and some non cash mark to market movements on equity securities and interest rate swaps.
With the changes in U.S. cap from 2018 movements in Mark to market value of all marketable securities will move through our piano impact net income.
Well the second quarter has been relatively quiet, which stable performance. The last 18 months have been very active but multiple transactions as a result of this the EBITDA is up more than 12% compared to the second quarter last year.
In the second quarter, we have added backlog by extending charters and upgrading vessels with scrubbers somewhat this is where the profit chef feature where we will receive a part of the benefit that fuel savings for vessels with scrubbers, which is not reflected in the backlog.
In addition to this we have subsequent to quarter end acquired three additional small fee. The vessels on similar terms as to 50 feet of vessels, we acquired last year with full pay off charters expiring in 2025, the purchase price is confidential, but relatively marginal compared to our role of fleet and that's a repeat deals intersections costs are very low and we continue building the relationship with one of our largest clients.
Following the recent charter extensions or charter backlog now stands at approximately 3.7 billion, we have nearly 90 vessels and rigs and the bulk of the recent transactions have been related to container vessels.
Only one of the vessels remain from the initial fleet in 2004 and over the years, we have changed both fleet composition and structure.
We have gone from a single asset class charted vessels the southern tip type company to two.
And also one single customer to a diversified fleet and multiple counterparties.
And over time, the mix of the charter backlog, because if I read from 100% tankers to nearly 60% offshore at one stage two container vessels now being the largest segment with around 54% over the backlog.
We do not have a set mix in the portfolio focus on evaluating deal opportunities across the segments and tried to do the right transactions from a risk reward perspective over time, we believe this will balance itself out and the fact that the tanker segment now is only 7% over the backlog is more a coincidence in my mind.
In addition, our strategy has been to maintain a strong technical and commercial operating platform incorporation middle sister companies in the sea Tac as group. This gives us the ability to offer a wider range of services to a customer from structured financing to full service time charters, but more importantly, we also believe it gives us unique access to deal flow in all core segments.
And most of the companies for the financing profile in the maritime world more than 60% of what cash flow comes from vessels on time charters and less than 40% from bareboat chartered vessels.
After the line latest acquisitions, that's a that's a fleet of 48 content Santa vessels into a car carriers. Although container vessels are employed on long term fixed rate charters and therefore not exposed to short term fluctuations in the market. We have recently increased the backlog by more than $160 million in connection with scrubber scrubber upgrades and the related charter adjustments two container vessels and additional several vessels, we will be upgraded scrubbers paid for by our customers.
Subsequent to quarter end the company acquired three container vessels ranging from 2400 to you to 4400 to you.
The vessels immediately commenced approximately 5.5 year bareboat charters to a leading container line until 2025, adding approximately $30 million to the backlog.
The purchase price is confidential, but similar to the 15 vessels acquired in 2018 or exposure is near recycling our view for the vessels and the transaction will amortize the ships effectively to see ROE over the charter period.
On the Drybulk side, we have 22 drybulk vessels in the fleet with 13 larger vessels chartered out on long term basis, and seven handysize vessels and two supramax bulkers traded in the spot market.
One of our long term objectives is to combine stability and predictability in cash flow spin optionality as we have seen over time that market volatility can generate superior returns from time to time.
We have a 33% profits bid on top of the base rate of $17600 per day, plus interest adjustment or about $18500 per day currently on a charters to.
Gold notion.
There was not a profit split in the second quarter, but the market level currently is well above the profit share threshold. So prospects are better for the third quarter.
The commercial success of most of the Supramaxes are all on long term fixed rate time charters, while the two ship from two remaining Supramaxes and 700 sites Drybulk carriers continue to trade in the spot market.
The rates achieved this quarter were approximately $6900 per day for the SUPRESS and 5900 for the holidays.
This is roughly in line with the previous quarter.
On the tanker side SFL as mine Trudeau product and chemical tankers, most of which are employed on long term charters on the vessels represent only around 7% of the charter backlog.
The tanker market has recently strengthened and is expected to be healthy for the remainder of 2019 as crude oil demand is forecasted to increase through the end of the year and the temporary reduction in vessel supply is expected as owners prepare for the upcoming implementation of IMO 2020.
SFS two suezmax tankers sent two of the Vlgcs for that scrubbers installed towards end of the year.
The crude oil tankers charter to frontline shipping limited earned approximately 24200 on average per day in the second quarter, which is higher than the base rate of $20000 per day at a profit share of approximately $600000 in the second quarter of 2019.
The average daily time charter rates from the companies to modern.
Suezmax tankers that are trading in the spot market was approximately 15800 per day in the second quarter.
On the offshore side up until 2017, the offshore segment was our largest segment from for our long term period from either.
Charter backlog perspective, but just down to 26% of charter backlog and.
We own three rigs and five offshore support vessels in the segment the charter hire from the drilling spread $30 million in the second quarter.
That's a fairly received full charter hire on the drilling rigs during the restructuring of Seadrill, which enabled us to significantly reduce our financial explosion through the rigs in that period.
We have agreed to temporarily reduced charter hire by 30% up to 2022 compared to the previous charter rates with a catch up thereafter.
In the meantime, we will continue to generate a strong net cash flow from these assets due to significantly reduce leverage and corresponding lower debt service cost breakeven rates for us.
Seadrill on their side has sub charter the harsh environment Jackup rig vest cleaners to clinical Phillips until the end of 2028 and the harsh environment semi submersible rig best Hercules has recently been awarded multiple consecutive sub charters in the North Sea and is now working for Ecuador.
Including divesting those we have reduced that from $1.9 billion. Initially on the seadrill rigs to less than $640 million currently or around a third of the initial that we had on that.
I know this aggregate outstanding loan balance only $266 million is currently guaranteed by ship finance.
The market for offshore supply vessels is very challenging and the five smaller offshore support vessels on charter to a subsidiary of sold spot remaining layoffs.
In light of the difficult market. So still has announced that they will have to restructure the balance sheet and there is a standstill agreement with multiple lenders and other stakeholders, including SFL until October .
We have therefore not recorded any revenues from these vessels in the second quarter.
Due to the continued uncertainty and pending balance sheet restructuring in soles, Todd we have decided to write down the book value of a note to be received in 2016 in connection with the vessel sale to zero and recorded an impairment of $8.2 million in this quarter.
This has to be conservative and the claim remains unchanged.
Overtime, we believe we have delivered significant shareholder value and we are the only maritime company that has been consistently profitable and paid dividends every quarter since 2004.
Over time, we believe our diversified portfolio approach has been important not only in order to benchmark transactions between segments, but also to mitigate the effects of being exposed to individual market cycles and create more stability over time.
The illustration to the right on this slide is comparing and investment in SSLP last 10 years with total return in some representative equities and segments, we have been invested in over the period.
With the exception of the liner segment performance in the underlying markets. If you have been invested there have been miserable and the total return in the line of market is around Spiro.
Comparing this to our performance and we have seen some volatility to over these years gives us comfort that you offer and investment alternative with a proven track record and credibility and long term stability.
In total $26 per shares have been paid out and we have a significant charter backlog supporting future cash flow.
And with that I will give the word over to our CFO Mr., Allison, who will take us through the financial accounts.
Thank you Ms. destocking.
On this side, yes, so pro forma illustration of cash flows for the second quarter.
No. This is all night guideline to assess the company's performance.
And this is not in accordance with us GAAP.
And also net of voice extensive extraordinary noncash items.
Total charter hire for second quarter was approximately $149 million down from $155 million in the previous quarter.
The reduction is primarily due to reduced revenues on listlessness authors scheduled rate reduction in may.
Lower revenues from the Suezmax tankers trading in the short term market.
So thus far in connection with cash scheduled drydockings.
Net income in the quarter was $28.1 million down from 36.6 million in Q.
Adjusted net income, excluding one offs and nonrecurring items was approximately $24.4 million margin, although down from the previous quarter.
This benefit generated approximately 81 million and talked to higher which is in line with the previous quarter.
Of this amount approximately 6% to 7% will survive some time chartering vessels and approximately 33% from bareboat charter vessels.
Our tankers generated approximately $13 million in charter hire and accusing us profit share contribution for approximately half a million dollars.
Of this amount, 95% plus to provide some time and voyage charter in vessels.
Our dry bulk vessels generated approximately 25 million and start to higher in the second quarter and approximately 80%.
From vessels on long term charters and approximately 10% from vessels sailing in the short term market.
On the office side receive charter hire of approximately $30 million from although seadrill rigs.
Our field drilling rigs are softer to fully guaranteed affiliates Seadrill limited the harsh environment Jackup rig Visteon has been sub charter to Conocophillips until the end of 20 to 28.
Well the harsh environment semi submersible rig vis terms it simply don't consecutive shorter term sub charters in the north sea.
So much rig coders to this trend in layup in Norway.
This analysis and adjusted EBITDA of approximately $121 million for the second quarter.
Were $1.12 cents per share down from approximately 1.4 in the previous quarter.
And then move on to the profit and loss statement as reported under Us GAAP.
As we have discussed in previous earnings calls our accounting statements are different from both traditional shipping company.
Our business strategy focuses on long term charter contracts.
A large part of our activities a classified as capital leasing.
As a result, a significant portion of our total revenues are excluded from U.S GAAP operating revenues and instead instead.
Revenues classified as repayment of investment infant finance leases.
In addition, the revenues from our drilling rigs.
Hundred percent owned associates are not thank you. That's all as they are defined as interest in associates and the U.S. GAAP.
Net contribution from some subsidiaries are included on the result in associates and long term investments and interest income from associates.
So overall for the quarter report total operating revenues. According to US GAAP of approximately $111 million, which is lower which has a lower number than the $149 million net sought to higher accuracy flip I'll mention reasons.
In this quarter as it fell recorded a 16.8 million gain on mark to market movements on equity securities investments and losses of 4.4 million related to mark to market movements on hedging derivatives of $2 million and I'm just station of deferred charges.
All of which are non cash items for the quarter.
As previously mentioned the company recorded 8.2 million non cash impairment with regards to note issued by a subsidiary of Fusco Sir.
Jackson with the state of a vessel and termination of charter back in 2016.
So overall and according to us GAAP the company reported net income from the 8.4 million or 26 cents. This year.
Thanks.
Looking at our liquidity and financing status.
At quarter end and approximately $212 million in cash on our balance sheet. In addition to approximately $10 million in a 100% owned assaulted.
In addition, the company had approximately 160 million marketable securities, including 11 million shares from time, which had a portion of the value of $88 million. In addition to approximately $10 million worth of shares its fifth carrier.
Other securities.
While many companies in the maritime industry experienced a more challenging market as banks, reducing their exposure to the sector.
So we'll continue to have superior access due to a strong track record and affiliation with this you think a screen.
As of today, Kevin active bank group of more than 75, Jos Bank and leasing institutions.
A senior bank leasing debt secured in us at an upcoming maturities are to a large extent covered by high quality assets with moderate leverage based on asset age and contract backlog.
And then just to roll over debt bank debt or Alternatively, the balloon is covered with purchase obligations, thus, reducing your role refinancing risk.
And recently diversified our funding sources. Thank you lease financing, both Chinese and Japanese leasing institutions.
Scientists castle attractive, it's a combination of long dated tenor and attractive cost of capital.
SFL is also on repeat issuer in both the us and the recent capital market.
And our bones Ocwen would include both our senior unsecured.
In June as the fill rate 700 million recent kroner in five years.
Unsecured bond.
Incentive for in the Nordic market.
The bone spring coupon of 4.6% above consulting niver reference rate amid softer approximately $80 million is a fixed interest rate of approximately 6.9%.
Subsequent to quarter end the company raised approximately 100 million. The recent kroners tough this year on the bond maturity incentives entity.
They're both duration at a premium to par value and the new outstanding amount of that is TEP issued 700 million or recent kroner.
Incremental testing to approximate the $11 million of the fixed interest rate from approximately 5.9%.
At quarter end.
Stockholders equity was approximately 1.2 billion, giving a book equity ratio of approximately 13% at the end of the quarter, while the market cap is approximately $1.5 billion.
Then to summarize the board has declared a cash dividend of 35 cents per share for the quarter.
This represents an annualized dividend yield of approximately 11% based on the closing price yesterday.
Net income for the quarter was 28.1 million or 26 cents per share.
We recently added approximately 200 million in backlog increase to charter extension.
And while we continue to collect revenue from our 2.7 billion backlog.
We also upsized from profit split arrangements for Mobiuss has teeth and capesize bulk vessels on charter to frontline and gold Norton respectively.
It sounds interesting to observe that the IMO 2020 story is starting to unfold increasing spreads between low and high sulfur fuel volumes.
As well as a very robust liquidity position.
With $271 million in cash in addition to our marketable securities.
Given our significant investment capacity going forward.
As mentioned this less capital available for mountain companies not only from the doors in the public markets and a growing demand for alternative capital providers.
As a speciality financing provider SSL is uniquely positioned to be the preferred financing partner for the maritime industry.
Given our versatile tool box, which includes timecharter variable and senior financing structures.
This is evidenced by our investments over the last year, we've executed more than 1.2 billion of new business, increasing the backlog with more than $1.4 billion.
And with that.
We reverted back to the operator, who will open the line for questions. Thank you. We will now begin the question and answer session. If you wish to ask a question. Please press star one on your telephone keypad and wait for your name to be announced if you wish to cancel your request. Please press the hash key once again star one if you wish to ask a question.
Your first question comes from the line of Randy Gibbons. Please ask your question.
Hi, gentlemen, how it's going.
Hey, nice to speak to.
Yes, so first.
Couple of questions here for 29 vessels scheduled to be upgraded with scrubbers. What is the quarterly cadence of the installations in capex spend of that $60 million.
And then how many of these 29 retrofits are being paid for by your customers.
[laughter].
I think in terms of the Capex round. There you know that's a that's going to be funded by a mix of cash that cash on balance sheet.
But most of that portion will will be a finance true true senior bank financing assets some of these.
Investments also come with charter extensions. So so that's part of.
Accounts, there the cash flow versus going forward and is that was that more or less evenly spread over the next step is a tree three quarters.
Do you want to answer that you know the the gross investments that that we will fund is relatively limited so.
From from our exact from a capital perspective, or it's it's not a it's not a big ticket for us at least not now, but we do need we keep discussions on with some of our clients and.
We there could be more vessels being upgraded of course when you when the scrubber upgrades for vessels with on on time Charter unit was the benefit really goes to the charterer. So.
We we were always happy to do that if we get a good return on our capital and if we believe that its accretive for us.
And if for some of our customers want to install it for their own account, we're happy to because they will add an expensive equipment to our vessels and of course once it integrated on the vessel, it's our property.
Sure sure.
All right that makes sense.
No I guess switching gears can you talk little more about the three small container vessels have required I know in recent calls you're saying, we'll tankers that sell tankers, maybe LNG carriers with kind of the the three targets, but then your most recent acquisition was three small container ships. So can you give more color on maybe the age of those and why this asset class instead of a different your larger asset class within container ships or different sector entirely.
Well, if you look at the product offering.
As actual mentioned we have a we have a fairly.
Large toolbox as we like to say so we are focus on the container side has been on the larger Containerships 10000, plus modern design you sort of eco styles. Containership said, we believe we will have a long economic life.
The going forward because they are much more fuel efficient.
And therefore deliver so our lower cost per se, but just boarded books for our further customers at the same time inc. from a risk reward perspective, if we can if we can do a deal. Unlike like these three vessels do mention they are really I would say almost like an add on to the 15 vessels. We did last year, where we effectively buy them at around recycling value and we are amortized that are amortized them virtually down to zero, it's a super low risk from an asset exposure perspective, and I would almost call with more of a more of a structured financing really than than an asset where we take a shipping risk. So we will not operate. These these are a bareboat and as I said, the amortizing down from a from a very comfortable level and as we understand the customer you may also put scrubbers on some of these for their own account again, adding call. It effectively that security if you can call it that in there.
The lease for us so you shouldn't do so so we should we should look at the core that investments in different lights in some investments like the bigger containerships were willing to take more I would say effective residual exposure charters that don't amortize sensor zero, because we believe they have a very long commercial life, while on other assets, we take an opportunistic view, where we don't have much residual risk at all.
Okay.
And I guess, one more for me looking at the cash balance certainly stands out up to the follow on bond offerings of other things more than $200 million.
Plus the three carriers thats coming in the next few quarters. So just can you touch on expected uses of this cash it's acquisitions or the screws sectors. This crude tanker cells, because LNG still the top three priorities and then any thoughts on certain purposes.
We aren't is it fair to say, we are we are evaluating projects consisting of continuously hair and.
Our ambition is of course to put this put this money to work in new accretive transactions to support. The you know a continued distribution capacity of course on an increased the backlog.
We've been we've talked about this before on previous calls I mean, we we of course would love to do more on the tanker side. We believe you know call. It our relative proportion on the tanker side is lower now than it than it's ever been.
But at the same time, we have to make sure. We do the right deals by the right sets with charters to the right Counterparties, where the right type of exposure.
So we did wouldn't buy ships just because we have to pull it out in a specific segment, it's all about relative risk reward.
So I would say our focus remains on on the tanker side. We think there are interesting fundamentals on the tanker side that that could potentially materialize also in deal flow for us.
We could look at LNG transactions, there are many many LNG vessels coming out and projects there.
On the Drybulk side. There are also opportunities I would say there are there are opportunities across the board.
But we cannot guide specifically.
On how we would deploy capital in each of them because we did what do we don't want to quantify to the mass so to speak in terms of how we should invest.
But.
As I said, our ambition is to is to invest the capital.
Or have a very big party.
Exactly.
Our accommodation.
Well I guess lastly, there with the share repurchases the yields 11% trading at a pretty good discount to NAV.
It's I would say.
We are always evaluating equal it up the optimization of the capital structure of the the small tap with adjusted is maybe an illustration of that where we just had an interesting opportunity where we could.
Take some what we think was relatively you know reasonably priced comparable.
Although it's small.
So we're always benchmarking that end and.
The fact that we Havent bought back shares is hopefully it is maybe an indication that we think that we will be able to deploy some of that capital.
In transactions that are call it more accretive per share in the at India and Thats. What we worked for two to build you know call. It distributable cash flow on a per share basis, so no repurchases of shares or buying back bonds or or managing the balance sheet is I would say continuing evaluation on our side.
Sounds good thats it for me Thanks again.
Thank you.
The next question comes from the line of Greg Lewis. Please ask your question.
Hey, Thank you and good afternoon everybody.
Hi, Greg.
Oh, just a real quick on the on those three vessels you bought post the quarter any kind of guidance you can give us around how revenue EBITDA I mean, obviously this is a scrap financing deal it sounds like but just kind of curious any kind of any kind of numbers you can throw out on us.
I think.
First of all.
It's a relatively marginal transaction.
It added around $30 million to the backlog, so 30 million dollar on a 3.7 billion.
Dollar backlog is as as that isn't isn't a big number.
So so it's.
I would say and but we cannot disclose the price because the prices confidential. Unfortunately, yes.
Okay, but I don't think it will make a big dent in our in our in our cash position quarter over quarter understood understood and then.
And then I guess, you obviously everyone's aware of the issues that the offshore space is having you wrote down those vessels I mean.
Push comes to shove is there.
Are these sellable assets or just given what Saul stands going through these vessels are kind of just going to be locked up inside that company for.
The.
The medium long term.
Well on those vessels specifically they are I mean, we are we have sort of signed up with the with effectively quality of the standstill together with the other creditors as stakeholders and so start.
They are so they remain on long term bareboat charters unsold dose allstar is responsible for call it maintenance et cetera, and they have cost et cetera on those vessels. So so certainly until the standstill expires, we cannot do anything you know legally of course after that you know we there are many they're all that what if that call. It transaction should collapse I mean, we could take the vessels back we could potentially redeploy them ourselves et cetera, I think it's also important to highlight that.
Relative importance here on these vessels when when they were included in our backlog and they are not included anymore. They used to represent only between one and 1.5% of the backlog also from a from a book value perspective. They are it's a very mount marginal investment for us mainly because we have amortized down these assets. So much since we acquired them back in 2007 and 2008. So so we we of course focused on we focus on all or all all or you call. It the whole portfolio. We took a small impairment this quarter relating to a note. We got from from deep what was deep Sea supply limited, which is no subsidiary capsules Doug.
It's it's it's a it wasn't unsecured note in connection with the sale of vessel. It was an interest bearing note. They did service it for some time, but now given the given the uncertainty around the whole situation, we thought that to be conservative it would be prudent on it for on on our books to do to keep it at zero, but of course, we we know that the claim remain sound and it's also part of effective you would call the standstill agreement.
So yes, we expect that to be to do what we say more to happen there out during the fall.
And that maybe have more of a solution towards the end of the year.
Okay, Great and then just one more from me. Obviously you guys are always in the market looking at transactions.
Yes, as you think about the cadence of what this looks like when you're looking at deals currently or what are the holdups like or the hold ups. The fact that hey, heading in the IMO 2020, maybe some potential transactions people want to take a wait and see approach is it kind of like some macro headwinds that are out there just as you think about maybe what is preventing you guys are so slow playing some of these transactions are you know you're obviously looking at.
What sort of thing like would what would you kind of characterize this as some of the and maybe there arent any maybe it's just timing just sort of what do you as you look to deploy capital. What do you think there is some of the sticking points that are preventing you guys from maybe getting to the finish line. If that's a fair characterization.
Yes, it's a very good question and I would say generally I mean, it's extremely easy to buy something you just pay more than the night than the next guy. So so so I would say.
Anyone can deploy capital. The question is how do you look deploy the capital in a way where you think that you will get a true return on the capital and that is the tricky part of course now with the changes in regulation.
So if you buy something and you might find a charter of course, you have you have the counterpart you have to evaluate relative risk.
You have to look at of course, the financing structure you can structure around a charter, but I think very importantly, and Thats, where we tried to be a little conservative we look at the residual value proposition I.
After that charter, whether it's a five year or 10 year or 15 year charter.
Where are we then we know on that specific asset.
What kind of when we know there could you could build an IND for the number of new vessels in that period.
Where do we want to be to be conservative in light of new regulations and what is developing in the market. So so it's I would say, it's a it's a cocktail that goes into project evaluation.
And of course also benchmarking deals between segments it's important.
Because what we see.
Is that in an upturn markets.
If you are invested in one single segment alone. It's so easy to get to get ahead of yourself and and the runoff and just just by like Crazy because the equity markets are open but it may not be a good investment still in the long run. So we tried to be what we say is we've tried to be conservative and careful but of course also with a with a very commercial mindset and certainly open to due to the business.
Okay. Thank you very much.
Next question comes from the line of James Please ask your question.
Yes, Hi, gentlemen.
Questions basically I was going to ask has been answered already so I really don't have a question right now I just wanted to say congratulations and.
Buying a company and not paying for a company with the 24 liners, you bought last year or so.
That's about it and then congratulations thank you.
Thank you very much.
Your next question comes from the line of Chris Wetherbee. Your line is now open.
Your line is open please ask your question.
<unk>.
[laughter].
Once again, if you wish to ask a question. Please press star one on your telephone and wait for your name to be announced.
If you wish to cancel your request. Please press the hash key once again Thats star one if you wish to ask a question.
Your next question comes from the line of Chris Wetherbee. Please ask your question.
Hi, guys can you hear me Hi, Chris Yes, we couldn't hear you it previously.
James on for Chris, but I thought I, just wanted to actually touch on the bulker market and get.
Your current view I'm trying to understand what you might have to see there before a deal looks sort of appealing and.
Sort of how far you think you are away from a market, where you might be able to put your some of your existing vessels on longer term charters.
Yes, and the Drybulk segment, we have 22 vessels 13 of those already on longer term charters on and nine are on shorter term charters of the nine to our Supramax Bulkers that are have just recently come off long term charters through two Clovis I know traded in a pool, while seven Handysize bulkers.
Have been trading and.
In the spot market or spot related for for some time.
We kind of define necessarily exactly when we would like to lock in those chartered vessels on longer term charters and I think the market for in these asset that has been I would say relatively slow for us for a couple of years, what could do hope now is that the market is firming and there are in it.
There are of course.
Several several unquote near term.
FX in the market that has created some so market noise, but at least.
The order book on the dry side has come down and certainly on the on the smaller size vessels, it's it's quite moderate.
So our long term.
You know call. It a long term objective for for all our assets I would say is to is to employ them on longer term charters if possible.
And and if not.
No we can either continue trading them or potentially also sell them.
If you look at the relative and call it investments.
So the smaller drybulk vessels are of course, among the smaller in our entire portfolio and therefore, what you say the less the least capital intensive.
And.
We've.
Through and that's probably one of our I hope that one of our strengths is that.
As these vessels have come off or a previous charters, we have been able to trade them in the spot market and we havent had to effectively fix them.
Because we havent had the operational platform to manage the vessels.
And both operationally and commercially.
Without being being ripped off bye bye bye for that service providers. So we keep the focus on them.
And of course hope to fully optimize the value there.
And get them on chart.
Got it and then also wanted to touch on the surface.
I also wanted to touch on the.
Southern scrubber.
Deal that one more time sort of.
What sort of appetite is there out there for similar deals and do you think that sort of discovered there has your outlook for scrubber penetration sort of increased more over the past three months relatives is sort of where you were or the beginning of the year.
Hi, This is Tim Shirley COO.
Do you.
The scrub is I mean, we I think it's fair to say that.
The scrubber scrubber appetite has been quite.
Strong and we see that even I mean more ships are being slated for scrubber installations and I think yeah.
We'll see that also during next year that more and more ships will be.
Fitted.
Especially if they're docking cycles are favorable for that.
And on from if you look at the fuel price.
Spread.
With forward rates for next year.
The price differential between between high sulfur fuel oil and low sulfur fuel oil, which is the alternative if you. If you don't have with you. The cheapest alternative if you don't have a have a scrubber installed.
Remained at around $200 per tonne isn't that right, yes, that's right.
It's around $200 and and when you and if you put the $200 and even if you are conservative looking at that.
Over several years and.
Take into consideration that is probably going to fall.
For big ships for ships with the large engine some high consumption. It certainly makes a lot of sense.
Especially as the hedge for the future.
Got it thank you.
Thank you.
We have no further questions at this time please continue.
And I would like to thank everyone for participating in our second quarter conference call and also thank the SFL team for their efforts. We are committed to continue building the company and we believe that will be good investment opportunities for us going forward with attractive risk reward profile. If you do have any follow up questions to our contact details in the press release, where you can get in touch with us through the contact pages on our web page Www Dot SFL core dotcom. Thank you.
That concludes the conference for today. Thank you for participating you may all disconnect.