New York-listed SFL Corp is upgrading one of its drilling rigs ahead of a loss-making charter in hopes of more robust earnings down the line.
The John Fredriksen-backed ship lessor said it had inked a $50m deal to fix the Hercules to ExxonMobil Canada for four and a half months in the second quarter following a dry docking in the first quarter that includes $80m-worth of work.
“The rig will then be available for new contracts from the third quarter and there is good progress on new charter opportunities,” chief executive Ole Hjertaker said on the company's fourth quarter earnings call on Wednesday.
“We have seen the international market for deepwater drilling rigs ... has risen quickly.”
He said the upgrades, which include traditional maintenance for oceangoing vessels plus fixes for the drilling equipment and upgrades that would provide a wider range of optionality, would help the ship earn a charter similar to the three-year deal a TransOcean rig got earlier this year for work in Norway.
Hjertaker said that charter was driving $80m in Ebitda over the life of the contract.
“Yes, they are expensive to upgrade and maintain and take through special surveys, but there is also very significant cash flow [possibilities],” he said.
He said he believes the ship will begin delivering distributable cash to SFL Corp sometime in 2024 or 2024, helping to boost a dividend that hit $0.24 per share for the quarter.
The decision comes as global rig counts have climbed year-over-year, according to data from Westwood Global Energy Group.
The company said last year this week there were 453 jack-up and floating rigs on the water, while this year there are 536.
For the quarter, SFL Corp posted a $48.5m profit for the last three months of 2022, versus an $80m profit for the same period last year.
The company recorded $198m in revenue for the quarter, up from $152m year-over-year.
Its 36 container ships and seven car carriers led the way, bringing ina combined $99m in Ebitda for the quarter, followed by its 17 tankers and their $49m contribution.
SFL Copr’s 15 bulkers brought in $24m in Ebitda, while its two drilling rigs earned $36m.
In total, the company owns 77 ships.
