SFL reports Q2 2023

SFL announced Q2 2023 results

  • Operating revenue of $164.5M (using Page 8, not Page 2 stat)
  • Net income of $16.9M
  • Declared dividend of 24c/sh
  • Some vessel sale. The vessel sales reduced SFL’s spot market exposure.
  • Subsequent to qtr end, the owner of VLCC has exercised option and repurchased vessel
  • Also, drilling rig Hercules received a new contract for drilling in Canada. The rig is currently drilling in Canada. It will then head to Angola later in 2023, complete a drilling contract, and then return to Canada for this new work.

SFL Quarterly Report (globenewswire.com)

Maybe a small surprise, maybe not. But SFL has been able to complete about $1B in debt financing in 2023, including on all of its newbuilds. SFL has also refinanced its two drilling assets.

Tiny SFL stake.


Post Q2 2023 earnings, SFL share price has been moving higher steadily.

There have been a couple of bullish SFL articles on SeekingAlpha. Each of them makes a couple of points

  1. The drilling rig Hercules adding charter backlog
  2. The older car carriers securing charter extensions with VW

My major issue with #1 is that revenue model for the drilling assets has changed significantly. When Seadrill (SDRL) managed the rigs for SFL, the charters were bareboat (SDRL handled most of the operational expenses), and SFL handled the financing of the drilling asset. Included in the arrangement was purchase options at various points of time in the contract. Obviously, with two Seadrill bankruptcies, an exercise of those options became very unlikely.

I will come back to drilling rig Linus. Let me tackle Hercules first. The semi-submersible rig completed its third survey and included some upgrades totaling around $100M. It then headed to Canada for a $50M drilling contract. Since it is a rig, it has to be moved to the drilling location. The mobilization and demobilization activity is part of the $50M contract. Since it is a necessary part of the contract, mobilization eats into operating margins. After the Exxon contract in Canada, the rig has a follow on contract with Galp in Namibia. Again, a $50M deal that includes a fee for mobilization and demobilization. A subsequent event is a return to Canada for a slightly longer contract with Equinor (200 days, including mobilization to/from Canada).

Now to Linus. The jack-up rig has been working in Norway since it delivered from the yard. The contract with ConocoPhillips goes out to Q4 2028. Seadrill no longer manage Linus. Found this data in a SFL slide deck (slide 6)
798e972c-badc-4bb0-b203-efdb1fc5d620 (globenewswire.com)

Revenue $19M
Opex $20.7M
[Edit: Reading the CC transcript, $7M of opex relates to Hercules, and zero revenue contribution. Going forward, offshore should EBITDA positive]
There’s $150M in financing on Linus, plus depreciation, plus management fees.

Regarding the car carrier extension contracts. Yes, they are a good deal. But the contracts don’t kick in until a pair of newbuild car carriers deliver in Q4 2023 and Q1 2024. So really, a 2024 event.

Revenue growth looks promising. But, the full impact of two (possibly three) productive assets won’t happen till the second half of 2024. My original target for SFL was $11.25/sh. A really small position so it doesn’t make much sense to split the bet. SFL has done a great job on the financing side in 2023, but there are still some negatives - (per the above link, there is still $75M capex on Hercules to cover), that Linus stat [edit: Less concern with positive contribution], older container vessels.