SFL Corporation Ltd (NYSE:SFL) Q4 2019 Earnings Conference Call - Final Transcript
Feb 18, 2020 • 10:00 am ET
Ole B. Hjertaker
7.6 million shares or two-thirds of our holdings at an average price of close to $11 per share and still keep the market exposure to 3.4 million shares through a forward contract expiring in June. The net effect is that we freed up more than $100 million in cash in the fourth quarter. In October and November, we took delivery of the last two 300,000 deadweight ton crude oil carriers or VLCCs with charters back to Hunter Group. The purchase price of $60 million per vessel is very attractive compared to estimated charter free values of more than $100 million per vessel. We finance $142 million on the three vessels, so equity investment was an aggregate $37.5 million. The charter period is 5 years and the transaction added around $33 million per vessel to our charter backlog. In early January, we finalized documentation and funded the cost of installation of scrubbers on seven out of eight vessels on charter to Golden Ocean. We will be compensated for the cash investment through an increase in the charter rate. but importantly the profit share threshold that will remain the same as before. With the scrubbers installed, we believe that the vessel will have a higher earnings potential and with the threshold for profit share remaining around $18,500 per day per vessel, we believe there is increased potential for profit share going forward. In the fourth quarter, before scrubber fitting, there was $600,000 in profit split on the bulkers, but there was more profit split on the tankers on charter to Frontline totaling $3.3 million in the quarter, despite the fact that one of these vessels was out of service for dry docking and scrubber installation during the half the quarter. Both the remaining two Frontline vessels know our scrubbers installed and are operating in the spot market and the economics relating to the scrubber upgrades holds true with owners keeping the delta and the fuel cost currently around $200 per ton. For VLCCs, the effect could be $2 million to $3 million additional net earnings at current spread between the fuel grades depending on vessel specification and freight.
We have also agreed with Maersk Line to extend charters for three additional 9,000 to 10,000 TEU vessels in combination with installing scrubbers. We added $160 million to the charter backlog for the last few vessels, but more importantly, we also have a profit share relating to the scrubber economics on seven out of the 10 large vessels we have on charter to Maersk Line. Vessels of this size use around 20,000 tons to 23,000 tons of fuel split per year and with the current price difference of $200 per ton, this could have a significant revenue effect for us going forward. The agreement there is that we will get most of the economics until we have recouped our investment with a good return on capital and thereafter a customer will get more of the economics. Of the seven vessels, the first vessel will