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Ship Finance International Limited (NYSE:SFL)

Q1 2008 Earnings Call

May 22, 2008 10:00 a.m.

Executives

Ole Hjertaker – Chief Financial Officer [:44]

Lars Solbakken – Chief Executive Officer

Analysts

Jonathan Chappell – J.P. Morgan

John Parker – Jefferies & Co.

Anders Rosenlund – ABG Sundal Collier

Ken Hoexter – Merrill Lynch

Operator

Good day and welcome to the Ship Finance Q1 2008 results presentation conference call. The conference is being recorded. At this time I would like to turn the conference call over to your host today. Please go ahead sir.

Ole Hjertaker

Thank you very much and welcome to the Ship Finance International first quarter conference call. From the company today we have the Chief Executive Officer Lars Solbakken and my name is Ole Hjertaker and I’m the Chief Financial Officer. Next Page

Before we begin the 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 1995. Words such as “expects”, “anticipates”, “intends”, “estimates” or similar expressions are intended to identify these forward-looking statements.

These statements are based on our current plans and expectations and involve risks and uncertainties that could cause future activities and results of operations to be materially different from those 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 Ship Finance’s reports and filings with the Securities and Exchange Commission. Next Page

Today we will discuss the first quarter of 2008 including some subsequent events and we will also discuss the financial results. At the end of the presentation we will open up for a Q&A session. Next Page

The board of directors has declared an increased dividend of $0.56 per share, up from $0.55 per share in the prior quarter. This represents $2.24 per share on an annualized basis or close to 7% dividend yield based on closing price yesterday.

Total return for shareholders has been in excess of 16% over the last 12 months on average and approximately 40% on average per year from the listing in 2004. We also, a few days earlier, announced the intention to increase the dividend further, by $0.02 to $0.58 per share with respect of the third quarter when the newly-announced rail ship is delivered and in operation.

The net income for the quarter was $59.8 million or $0.82 per share. This includes $33.7 million of profit share, a $6.8 million gain on sale of a single vessel and the negative non-cash mark to market of swaps of $2.2 million. Our fixed charter contribution was $137 million or $1.88 per share, excluding profit share, but including a vessel not consolidated based on U.S. cash. This is in line with the previous quarter.

There’s been a tremendous profit share contribution in the quarter of 33.7 which is the second-best profit share contribution in our 4-year history. EBITDA equivalent net of OPEC’s and G&A expenses was $142 million or $1.96 per share, including the profit share.

The strong market has continued into the second quarter where brokers indicate the higher rate level than in the first quarter. And currently brokers are indicating a spot market rate for VLCCs in the region of $160,000 to $170,000 per day. And this quarter today it has been in excess of $100,000 compared to $91,000 approximately per day for the first quarter. Again, based on broker reports.

We’ve had a very good deal flow over the last 12 months, with $1.5 billion of new acquisitions announced. We’ve also sold off several single-hull vessels last year and going forward we expect to be able to increase dividends as we do new accretive acquisitions. Next Page

In the quarter we have agreed to acquire two 17,000 dead weight ton chemical tankers. They will go on 10-year charters at $8,000 per day on a bareboat basis. One of the vessels was delivered midApril and the other in late August. There will be approximately $1.4 million in annual net contribution after interest and installments from this separate transaction, or approximately $0.02 per share annually.

We have also re-chartered in the quarter two of our 1700 TEU container vessels. They are now chartered 12 years where only the first year will be on a time-charter basis where we will cover the operating expenses. And the remaining 11 years will be on bareboat charter, where the charterer will cover all such expenses. This acts as a charter to the Asian regional operator HeungA.

In the quarter we’ve also taken delivery of two anchor handler vessels which are chartered to Deep Sea Supply. Total investments for these vessels were $126 million less $22 million seller’s credits. We have invested $27 million of equity into this project and both these vessels were delivered to us in January.

We also continued reducing our non-double hull exposure and excluding vessels sold on higher purchase, we now only have seven vessels left. Most of these are chartered out through 2009 and also if you look at the value these assets represent based on our total asset base, you know these vessels represent a very low value. On our balance sheet we will basically have written them down to scrap value by 2010. Next page

A few days ago we announced a record-breaking transaction where we acquired an ultra-deepwater drillship for a total cost price of $850 million. This is the largest ever single sale/leaseback transaction in the maritime industry. And we are quite proud to have completed this transaction in an otherwise challenging financing environment. The $850 million transaction will generate more than $1.1 billion of bareboat charter revenues over the 15 years.

The first three-month period, the vessel charter rate will be $107,500 per day for three months. That’s during mobilization to Brazil where the vessel will operate on its initial contract. Seadrill has sub-chartered the drill ship to Exxon Mobil for operation in Brazil initially.

Thereafter, the charter rate will be approximately $330,000 per day or $120 million per year for four years thereafter. The fifth year, after the initial mobilization period, the charter rate will be approximately $231,000 per day.

Thereafter there will be two years of $176,500 per day. Additional two years at $170,000 per day. Two more years at $145,000 per day. And then the remaining period, the charter rate will be $125,000 per day.

We have also granted Seadrill certain purchase options. The first purchase option will be after four years and three months and the purchase option price will then be $548 million and the last purchase option price is $177.5 million after 15 years.

This drillship is essentially a state-of-the-art deepwater drill ship capable of operating in 10,000 feet of water depth and drilling down to 37,500 feet. It has dynamic positioning and is capable of dual drilling.

If you order a similar unit from the shipyards today for delivery in 2011 the yard cost alone would be close to $700 million and if you include pre-delivery expenses and interest and other costs related to construction, you would have a delivery cost in the region of $825 million to $850 million.

The West Polaris is delivered now very soon and we will receive the cash charter hire now instead of having to wait three years before that is being generated. We will also have written the asset down very substantially based on the very strong charter rate we received. In the period it would take to take delivery of such a vessel if we ordered it today.

Seadrill has a $12 billion order backlog for their assets and this unit is sub-chartered to Exxon at a rate of $544,000 per day for the first three years. And $602,000 per day in year four. This is on a basis where Seadrill recover all the operating expenses.

The total transaction amount of $850 million we have secured commitments for $700 million from international leading banks based on a five-year structure. Similar to virtually all our recent transactions the last two years we only guarantee a portion of this debt.

The corporate guarantees from Ship Finance in this project is limited to $100 million initially, reducing to $70 million at the end of the loan period. And this will provide us with more flexibility. Next page

If you look at our Profit and Loss statement, I would like to stress that we have lease accounting for the largest portion of our assets. Therefore when you look at our total operating revenues as reported based on U.S. GAAP a very significant portion of our charter hire does not appear in this number.

For this quarter alone, the part of the charter hire that is classified as repayment or investment in finance leases and therefore excluded from operating revenues was $48 million. This number appears also in the cash flow statement.

For the benefit of the analysts and investors we have as usual provided in the appendix to the presentation on Slide 22 a breakdown of the finance leases for the last four quarters and forward-looking four quarters based on existing lease schedules as described in the notes to assist you in seeing how this fit between what is being recognized in our income statement and in our cash flow statement.

If you look at our year-on-year basis from first quarter 2007 to first quarter 2008, the charter revenues increased from operating leases and finance leases, increased from $120 million to $136 million.

This quarter, of course, we have the very strong profit share and during 2007 we changed our accounting basis and we can now recognize the profit share when it is accumulated. In first quarter of 2007 the accumulated profit share was $15.2 million which is less than half of what we have accumulated in the first quarter of 2008.

Yet again, on sale of assets in the region of $6.8 million, it was mainly relating to the sale of the single-hull vessel Front Maple which was delivered to its new owners in January. And also a very small profit on the sale of Sea Trout, which was sold back to Deep Sea Supply in early January.

If you look at the ship operating expenses we see that we’ve actually reduced ship operating expenses compared to last year. And this is despite having increased our fleet quite substantially. I think we now really see the fruits of our deliberate avoidance of taking operating expense risk.

All the vessels to Frontline have a fixed rate operating expense of $6,500 per day and that’s a fixed amount all the way through the end of the charter and the longest charter we have to Frontline is 19 years remaining. Frontline, on their side, recorded $8,300 per day average operating expenses in the first quarter.

But they did not dry dock any vessels. If we look at 2007 they reported $9,600 per day with an average of four dry dock ins per quarter. And generally we see the trend in very rapidly rising operating expenses. We see that to continue.

We operate three small 1700 TEU container vessels where we have the operating expense exposure right now. And we see that from month to month. So as we expect this trend to continue we also expect to continue structuring away from taking the operating expense risk unless we are properly compensated.

In the mark to market of derivatives we showed a $2.2 million loss due to hedge accounting. I would like to note that we during 2007 and also especially this last quarter, have focused on converting as much as possible of our loan interest exposure to hedge accounting. And due to the falling interest rate level we would otherwise have reported a $34 million additional loss on all the loans which we have designated now as hedge accounting under U.S. GAAP.

Of course, these are non-cash amounts but at the time same time we think they create a disturbance in our profit and loss statement and with our very long charter portfolio and long financing also structured to match parts of this portfolio we think it makes sense to structure it as hedges so we don’t see the short-term movements in interest rates. Next page

On the balance sheet I will not make many comments. I would just like to note that as most of our assets are classified as investment in finance lease you will see that that class on the long-term assets is in excess of $2 billion and also a good portion of the other current assets which is close to $190 million represents the current portion of the investments in finance leases.

Under “Stockholders’ Equity” we reported book equity of $603 million as of March 31st. This excludes $223.5 million of deferred equity which is being recognized over time. This was in connection with the initial and subsequent acquisition of vessels from Frontline where we accounting for the vessels based on the historical book value of the vessels while they were transferred to us based on market value.

In the cash flow statement on page 9 we just want to point you attention under “Investing Activities” the first line ‘Repayment of investments in finance leases’ $48 million for the quarter ended March 31st. That is the cash charter hire we have received but is not recognized under operating revenues. Next page

Management focus is more on operational performance based on our charters. We generate a very significant cash flow per charter and we also have a large performing fleet. As you can see from the overview here we had fairly stable fixed charter rate hire from the VLCCs.

On the Suezmax side the reduction in charter rate from fourth quarter 07 to first quarter 08 represents the two sing-hull Suezmax tankers that we sold with delivery in December 2007 and the other with delivery in January 2008. On the container side it has been quite stable. It’s a slight reduction and that is partly because the two vessels were re-chartered were chartered on short-term charters at slightly higher average rate than what we now will get based on the 12-year charters.

The dry bulk vessels, including the OBOs has been stable through the quarter and in the offshore segment we have a 7% increase which is based on the addition of the two anchor handle vessels to Deep Sea Supply and method of the reduction of one platform supply vessel which were delivered to us in January.

The vessel operating expenses and general administration cost is in the region of $28 million in the quarter, which is a slight reduction compared to the previous quarter. Accumulated profit share however has been very, very strong and is more than double what we generated in the previous quarter. So, EBITDA after accumulated profit share for the quarter is close to $2 per share.

If you look at the changes going forward, in the second quarter the single-hull VLCC Front Sabong started its new higher purchase arrangement to TMT in mid-April. It will then go on the increased $29,900 barebook rate from that period for three and a half years.

On average, that vessel will earn $22,000 per day more in that period compared to the old original base rate when we adjust for the operating expenses. Also, in mid-April we took delivery of the first chemical tanker to Bryggen which is chartered on a barebook charter at $8,000 per day.

In the third quarter we will take delivery of the West Polaris which will be in we expect for the full quarter at $170,00 per day which, of course, as I mentioned earlier is increasing to $330,000 per day as from the fourth quarter.

In the third quarter we also expect to take delivery of the second chemical tanker in late August and we also expect to take delivery of the first scan vessel in third or fourth quarter 2008 and also the first cape size bulker to Gold Notion is expected to be delivered in the fourth quarter. Next page

Ship Finance started as a pure tanker company where all the old boats were trading in the wet market. The growth in the bulk, container and offshore space only has happened during the last two years and is fuelled by profit share payments from Frontline.

Over time, further balancing through growth, we see further balancing through growth in these segments. And container and offshore are expected to be higher have a higher relative share portfolio over time.

We don’t have any specific targets per segment. We will do the best deals available to us. With Ship Finances rich profile we believe the company can grow in all market cycles and we see an increased deal flow and very good access to transactions. And we believe we are well-funded to continue growing.

Net cash commitments for the rest of 2008 is $224 million, net of committed project financing related to these projects. This includes the $850 million drillship transaction. Our available liquidity at the end of first quarter was approximately $216 million and this number excludes the $33 million profit share contribution in the first quarter which is payable in March next year. In addition, we also have several assets which can be used to raise money to fund new projects. Next page

We have a unique order backlog. Typically companies with large charter backlogs have five to seven year charter coverage. And we are in a different league with more than 13 years weighted average. We have a $6.6 billion fixed-rate order backlog or $91 per share and the EBITDA backlog is $5.6 billion or $77 per share. These numbers are before profit share and does not include any re-chartering after the end of the current charters. Next page

We have shown a consistent dividend track record where we have paid stable and increasing quarterly dividends. The dividend announced today is $0.56 per share which equals approximately 7% dividend yield based on yesterday’s close price.

We have announced a further increase to $0.58 per share with respect to third quarter when the drill ship is delivered and in operation which would, based on yesterday’s closing price, represent a 7.2% yield. We have invested significant amounts in 2007 but also received significant net proceeds from sale of single-hull tankers.

Going forward, we expect that new transactions will be net accretive to the long-term dividend capacity as illustrated by the $0.02 per share dividend increase on a quarter basis for the drillship transaction. Next page

The profit share agreement with Frontline has been very favorable for the company. The original charters were structured much lower in the tanker cycle which means that there’s a low profit share threshold. There’s been $86 million average annual incremental cash flow above the base charters or $370 million over a four year period.

The dividends we pay are based on distribution capacity exclusive of profit share contribution from the spot market. And as we see it, the profit share contribution we see these days are really icing on the cake. This has enable the company to fuel significant growth and based on the market outlook we expect the profit share to be very significant also for 2008. Next page

Due to the third-party coverage, the profit share is very robust even in a slow market. However, we see a very strong spot market currently and if we look at Clarksons report second quarter VLCC earnings in the region of $103,000 per day on average so far. This is higher than what they reported in the first quarter of 2008 of $91,600 per day.

If you look at the average of the Clarksons second quarter number so far and combine that with forward rates as quoted by Imarex for the third and fourth quarter, it indicates an average VLCC market in excess of $95,000 per day.

This would mean if this actually will be the real result, we would look at in excess of $120 million in profit share for the year 2008, which will be extraordinary. Of course the final profit share will depend on actual earnings on a vessel-by-vessel basis.

And if this should materialize, we can expect a very good profit share contribution for the year. This illustration also shows that even when the average port rates are in the region of $12,000 below or base rate, there will be a positive profit share contribution. Next page.

We have a loan portfolio of approximately $2.3 billion, including approximately half a billion dollars in bond loans. We have more than 25 banks and their syndicates, and we have very good access to capital. The drillship transaction, as I mentioned earlier, has been significantly oversubscribed by banks in an otherwise difficult financing market for most companies.

Also, with our portfolio long-term charters, our strategy is to hedge a substantial portion of our interest exposure. This is done by a combination of stocks, fixed interest and interest compensation through charter agreements.

We have also increased the level of hedging during first quarter due to a very attractive interest rate curve. Currently, approximately 70% of our portfolio is hedged, and this is increasing to 75% if you also include committed new projects.

New projects are generally done with no or limited recourse to our balance sheet. Over the last two years, we've done projects where we have currently — and this includes new projects, such as the drillship. The financing for these projects total in the region of $1.7 billion, of which only $240 million are guaranteed by Ship Finance International. This represents only 14% on average.

We do have capital available. We have in the region of $260 million through cash and existing revolving credit. We expect the profit share payment next year to be quite substantially, and we also have additional unpledged assets that we could use to find additional growth.

In the second quarter to fourth quarter, we're looking at $150 million net investment in the drillship, which is the equity component in that project. And we're also looking at investing the equity component in the two chemical tankers and one Suezmax vessel and the KXR Spoktor [ph].

We also effectively will make a net $3 million investment relating to the Front Sabang as we have received a $22 million upfront payment from the charterer but will pay Front Line $24.6 million to terminate that charter. Next page.

So then as a summary, we are very happy to report a very strong quarter with a net income of $0.82 per share, which is fueled by a very strong profit share of $34 million in the quarter alone. This is the second-highest contribution since 2004, and the market indicates a very high profit share for the year.

We've also demonstrated significant growth, and we expect new projects to increase charter revenue substantially, and also we have the capacity to continue growing. We have increased the dividend from $0.55 to $0.56 compared to previous quarter. And we will increase the dividend further, an additional $0.02 to $0.58 per share with respect to the third quarter when the drillship is in operation. And we are committed to continue growing the company.

Thank you, Operator, and you may open up for the question-and-answer session.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question will come from Jon Chappell from J.P. Morgan. Please go ahead.

Jonathan Chappell – J.P. Morgan

Thank you. Good afternoon, guys.

Ole Hjertaker

Yes, hi.

Jonathan Chappell – J.P. Morgan

Lars and Ole, there was commentary in your rig press release that made it seem like this is the first of what could be a handful of other rig contracts. It seems like a very accretive deal, but these assets are also exceptionally expensive. Can you talk a little bit about your plans to do, to stay in the ultra deepwater rig business and your financing capabilities to add assets that are approaching $1 billion each?

Lars Solbakken

As commented by Ole here, we have just finished the financing of the first unit. You know, we raised $700 million. That has been substantially oversubscribed. We have received commitments in excess of $1 billion, and we are of the opinion that it is even in today's difficult banking market it's possible to find more units.

But any such projects, you know, we need to negotiate and agree with a counterparty with that, and I think that we have, we are committed to grow this company, and we see a number of opportunities in the offshore sector but also in other sectors.

Jonathan Chappell – J.P. Morgan

Are you going to new bank syndicates to get the financing done or your existing banks filling it?

Lars Solbakken

You know, we already have about 25 banks. You know, we're also working constantly to increase the number of banks as our loan portfolio grows. But I think that we keep in contact with most of the international banks that are active in the shipment financing of the vessels and offshore units.

Jonathan Chappell – J.P. Morgan

Okay and then the seven remaining non double-hull vessels on the tanker side, I know that they're time chartered, so there's not a lot of volatility there in their earnings, but do you envision liquidating those assets to kind of improve the balance sheet? And also whose decision is that? Is that ultimately your decision to sell these assets or is it Front Line's?

Lars Solbakken

We have a dialog with Front Line on that, and in order to sell them, we both have to agree to that. From our side, I think we have been interested in reducing our single-hull exposure, and you know, if the right opportunities kind of occur, we may sell more vessels.

But you know, we have these six chartered until, you know, on the current level until mid-2010 and then on the lower level thereafter. But you know, worst case for us is basically that all the — if the vessels are scrapped in 2010 and with the current scrap prices, you know, we'll have profits, you know, on the vessels even in the worst-case scenario.

Jonathan Chappell – J.P. Morgan

Okay.

Ole Hjertaker

I think I would like to add also that, you know, all of these are single-hull vessels. They do trade, and Front Line has essentially sub-chartered most of them with a base charter rate and then a profit share on top.

And just for the first quarter, to give you the breakdown there, we have reported average of yield to charter rates of 82,100. The double-hulls earned $97,500 on average, while the single-hulls earned $46,600 on average. So as you can see from those numbers, there is a actually a very nice additional, you know, cash flow generated by these assets.

Jonathan Chappell – J.P. Morgan

Okay and then final question is of the $224 million of commitments for the remainder of this year that haven't received financing yet, what do you envision being the ultimate spread of debt and equity for that amount?

Ole Hjertaker

Well, generally, I mean we have, you know, the money that we mentioned, you know, $260 million is called a combination of cash and money we can draw tomorrow if we like.

Jonathan Chappell – J.P. Morgan

Right.

Ole Hjertaker

So we have quite a bit available. We can also — we also have some assets that we don't have any loans against currently that we can easily borrow money against if we want to raise money, and also as we, of course, have a running cash flow from our projects, we expect also to generate some surplus cash flow from that. So I think we are —

Jonathan Chappell – J.P. Morgan

Okay so you think maybe 50/50?

Ole Hjertaker

We are quite well positioned.

Jonathan Chappell – J.P. Morgan

All right. Thanks, Lars and Ole.

Lars Solbakken

Okay, thank you.

Operator

We'll take our next question from John Parker from Jefferies. Please go ahead.

John Parker – Jefferies & Co.

Good afternoon. I wanted to ask you have you considered swapping out any more of your debt in this low interest rate environment?

Lars Solbakken

Yes, we have actually done or extended a number of our swaps, you know, during, you know, so far this year. So we have been actually quite active taking advantage of the low-interest environment, too. But you know, we are very concerned to get the hedge accounting for the new swaps. That is part of the reason.

So swaps that have not been hedged, treated on the hedge accounting basis, we have redone, so they're not treated on the hedge accounting basis. That means that we, of course, have to follow the long profile. The sum of the hedges has been down to 211 and some to 212.

John Parker – Jefferies & Co.

Okay but in terms of your 70% currently, would you see that going up or is it more just a case of extending it out further?

Ole Hjertaker

I think also if you include the committed financings we have, you know, it is around 75%. Also, as part of our loans are more revolving credits, sort of the liquidity facilities, you know, you don't normally hedge that.

So what we've focused on is sort of hedging the long-term financing, and we have a good high, you know, hedging of those. Of course, we will consider from time to time what we do with the remaining, but it's not a very large proportion of our total portfolio.

Lars Solbakken

And you can say that basically all the new projects that we are doing are hedged, and we may have a little bit of what is open and of course, it's currently, you know, the interest rates, the short-term interest rates are very low, so we're taking advantage of that for a small portion of our total exposure. But we're constantly looking, following this market very closely and may hedge a little bit more than we have hedged today.

John Parker – Jefferies & Co.

I assume you have interest rate escalation clauses in the drillship deal. Is that correct or did you swap that out?

Lars Solbakken

Yes, there is an interest rate there, but there is an interest computation clause, so it's actually linked to — the current rate that we have announced is linked to 2.85 LIBOR, so if it's above 2.85, we will get a higher rate. And basically, you know, the intention is that this will be swapped for at least the four to five first years.

John Parker – Jefferies & Co.

Okay, are you —

Lars Solbakken

Let me say there's no interest risk on our part.

John Parker – Jefferies & Co.

Got it. Are you seeing any shipyard delays in your various new building projects?

Lars Solbakken

I think that is, of course, a general concern for everyone these days. And you know, I think many of the projects that we have, which is important here, you know, we are structured in a way that the number of the vessels that we are committed to we buy — or that are chartered out — we buy on delivery.

And we also have certain, you know, there is compensation. If there are delays, we are compensated for it. But it's clearly a general concern that there may be delays in deliveries where we, you know — especially I think that this when we come to 2009, this is a concern for everyone in the shipping industry today.

John Parker – Jefferies & Co.

Okay and I assume you continue to weigh you options for the Suezmax, as we have no charters. You're still out there in the market looking for a long-term charter for those.

Lars Solbakken

I think that we are very glad we have not chartered them. You know, they were ordered $71 million. You know, with today talking prices and they settled 100, so you know, it's very, very substantial increases. And you know, we're following the market very, very closely to determine what to do.

John Parker – Jefferies & Co.

Okay. Do you see a pressure on scrap rates around 2010 if you have a lot of single-hulls suddenly go into the break yards? Do you think the scrap rates would be under pressure? Have you looked at that at all?

Lars Solbakken

I must say that yes, we have looked a lot on the scrap prices. We don't think that that is probably going to — you know, probably scrapping is going to spread out. You know, and we see, you know, of course, the number of alternatives and also still can be melted into new steel again, and you know, we don't expect —

Of course, scrap prices are at extraordinarily high levels historically, but I must say as things look now, you know, we expect the continued strong scrap prices.

Ole Hjertaker

Also, of course, it's also linked to the steel price, and as that is booming, you know, it's dragging the scrap metal market up. And we also see an increasing number of steel mills who are, you know, doing modifications to take a larger proportion of scrap metal. So we think that is also going to influence that market going forward.

John Parker – Jefferies & Co.

Okay and then finally, I guess, Joe had asked this earlier about your capacity for doing more deals. Would you consider doing a secondary offering of shares? I mean these drillship deals are obviously pretty large, and I think there's a lot more drillships being built that you could possibly finance. Would you consider doing secondary or you think right now you're committed to doing more debt on your unencumbered tankers and taking your cash flows?

Lars Solbakken

I think we're constantly considering our options, but our current commitments also are financed so but of course, we will always consider basically our options there with respect to funding future investments.

John Parker – Jefferies & Co.

Okay. That's all I have. Thank you very much for your help.

Ole Hjertaker

Thank you.

Operator

(Operator Instructions) We'll take our next question from Anders Rosenlund from ABG.

Anders Rosenlund – ABG Sundal Collier

Hi. Maybe you've answered the question already, but how much — you'd previously been commenting on how much capacity lift projects or you've commented on a figure. You've given a figure on that on previous calls. Could you give us a figure this time on what kind of abilities you have to lift new projects right now?

Ole Hjertaker

We don't have a specific number for you. What we so have is, of course, capital available, you know, as I mentioned, around $216 million, including cash and an available amount under existing revolving credits. We also have some unencumbered assets. We don't want to give an exact number as such, but of course, we are looking at, I would say, looking at many transactions currently, and we see some very good growth opportunities.

Anders Rosenlund – ABG Sundal Collier

Okay and maybe you feel that you've answered the next question as well. Previously, you've stated that you don't want VLCC accrued to be a too-large proportion of your total involvement. If you add a handful of drilling rig sets at $650 million apiece, you would certainly have a lot of offshore exposure. How should we think about this going forward?

Lars Solbakken

I think that, you know, we're very pleased with, you know, with the exposure with Pake [ph] with respect to the drilling units and, you know, with very front-loaded repayment and sub-chartered to Exxon, you know, for the first four years taking substantially down the exposure.

You know, of course, the key exposure point there is after Exxon charter, and we're down then, substantially down from the current levels. So we feel that risk-wise these are very, very solid projects, and we feel comfortable, very comfortable, increasing our exposure on the offshore side. And it's still a relatively reasonably small portion of our total portfolio.

Ole Hjertaker

I would also add that we also think the container space is very attractive for us. Generally, you know, in the container market you see the possibilities for long-term charters, which is matching where our preference is. And also you see some very strong charter counterparts, so we think that is also an interesting market sort of near term.

However, we will look at all segments. What we focus more on is how do we add the right projects for us? Where do we get the right return characteristics when we do new deals?

Anders Rosenlund – ABG Sundal Collier

Okay and just a final question. The deal that you struck with Sea Drill looks fantastic looking at the figures and returns you're getting on your equity. Does that mean that there is limited competition for such deals or what does that mean?

Lars Solbakken

Yes, I think that when you come to a transaction, especially on the offshore side, and you talk to the size of $850 million, there is limited competition.

Anders Rosenlund – ABG Sundal Collier

Okay, thank you.

Lars Solbakken

There's not that many that can do those projects. You know, you need, of course, very strong support from international banks, which is not that many, you know, that have these days. And in addition, of course, there is $150 million in equity that needs to be put in.

Anders Rosenlund – ABG Sundal Collier

I see. Thank you very much.

Lars Solbakken

Thank you.

Operator

We'll take our next question from Ken Hoexter from Merrill Lynch.

Ken Hoexter – Merrill Lynch

Hi, good morning. If I could just follow up on the last question, is there a particular field that you feel is attractive right now to be adding more capacity? It sounds like — you know, are there container ship acquisitions that are getting more attractive because of the tough financing environment for others as the ships get larger and more costly?

Ole Hjertaker

Well, we definitely see a changing market environment. I think we generally — last year we looked at a lot of container projects. We felt that for us we didn't see the return characteristics add up for us.

You know, that's one of our benefits as we see it. We are targeting four very different segments within the marine industry: tankers, bulkers, container and offshore. And but, of course, if you're only pegged onto one single of these segments, for instance, if you're only pegged onto the container space, you know, you have to fight for the few deals that may come up there.

And if then you have many companies in that space, we see, you know, generally if there's a lot of competition, usually there are two ways to win the transaction. You either go up on your risk profile or you go down on your returns. And as we have seen other projects, we have instead switched to other segments and would be very happy to do container projects.

We have seen increased return characteristics. The most recent transaction we did was, of course, in the offshore space, but we may also do container transactions.

Lars Solbakken

I think, as Ole mentioned, we have looked at the number of container transactions, and we absolutely hope to do more of that. Last year the yield we thought was too low. This year we see yields that we think is acceptable. I think that what we found more attractive with the drillship is that it's a major delivery, and a number of the transactions in the container, with respect to container vessels, have been forward delivery. A number of them deliver in 2010.

So you know, when we compare that to this drillship transaction, we felt that here we could get immediate delivery. We also had four-year Exxon charter, you know, in addition to the continued charter to Suezmax, which is also has a very large order backlog. And so we've felt that this transaction was more attractive right now.

Operator

We will take our next question from Chris Weatherby from Merrill Lynch.

Ken Hoexter – Merrill Lynch

Hi, guys. It's Ken again. I don't know what happened there. I think I got dropped in the middle of your answer, so Chris just conferenced me in. So that makes sense as far as why you're kind of diversifying. But then as you look at the vessels that you've got on order that you mentioned earlier on that you still have set for delivery, are you going to look do you think to start looking at long-term charters for those or do you like based on where spot markets are to keep operating those in the short-term market?

Lars Solbakken

With respect to you're thinking now of the container vessels that we have on order?

Ken Hoexter – Merrill Lynch

Not just containers. I thought you had a couple others as well that you said you haven't chartered yet.

Lars Solbakken

We absolutely and we are looking and following this market very closely, and of course, getting offers for long-term charters. A general characteristic of the market is that as the market has been now, a discount if you have long forward delivery. So we have felt that so far it's been attractive to wait to fix them, but this will change. And we're following the market, discussing with potential charterer, but we have decided so far to wait to fix them.

Ken Hoexter – Merrill Lynch

Okay.

Ole Hjertaker

As an example, we have two Suezmax tankers on order. We ordered them for $71 million and, you know, in the third quarter of 2006. We could, of course, send a fixed amount with a charter reflecting that value. Instead we have waited. They are not fixed yet. We can work with them, work with those vessels. And I think now we would look at the values in excess of $100 million apiece for those. So of course, you would then look at finding charters reflecting this higher value and capturing that incremental increase.

Ken Hoexter – Merrill Lynch

Great. Thank you.

Ole Hjertaker

Thanks.

Operator

(Operator Instructions) As we have no further questions, I would like to turn the call back over to you, gentlemen, for any additional or closing remarks.

Ole Hjertaker

Thank you, everyone, for participating in the Ship Finance International Limited First Quarter Conference Call. We hope to continue building the company going forward and look forward to speaking to you again on the next conference call, which is scheduled in August. Thank you.

Operator

That would conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.

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Source: Ship Finance International Limited, Q1 2008 Earnings Call Transcript
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