Good day. And welcome to the Q3 2015 Ship Finance International Limited Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ole Hjertaker, CEO. Please go ahead.

Thank you and welcome everyone to Ship Finance International and our third quarter conference call. Our CFO, Harald Gurvin had to attend an out of town funeral today, so I'm today joined by our Senior Vice President, Andre Reppen. 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 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 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 Ship Finance's reports and filings with the Securities and Exchange Commission. The Board has again increased the dividend by $0.01 to $0.45 per share. This dividend represents $1.80 per share on an annualized basis or 10.7% dividend yield based on closing price of $16.85 yesterday. This is the 47th consecutive dividend and we have now paid more than $20 per share in dividends since 2004. Reported net income for the quarter was $45.5 million or $0.49 per share. But if we add back non-cash items and adjusted for sale of a vessel in the quarter, the earnings per share would have been $0.61 per share. Aggregate charter revenues recorded in the quarter, including 100% owned subsidiaries accounted for as investment in associate was $167 million and the EBITDA equivalent cash flow in the third quarter was approximately $136 million. Last 12 months, the EBITDA equivalent cash flow has been $536 million. Profit share…

Thank you. [Operator Instructions] We will now take our first question from Magnus Fyhr of GMP Securities. Please go ahead. Your line is open.

Thank you. Congrats to a great quarter and increase in dividend. Just a couple of questions. Starting you continue to see new investments in the container area, is that where I mean given the weakness in drybulk and offshore, is that where we're going to expect most of the investments going forward or with the asset values lagging in the tanker market, could you potentially see some opportunities there?

Yes. We're looking at opportunities, I would say across the board in all our segments. I would say, we would be more careful at the moment in the offshore space simply because of the dynamics in that market, but we are looking at other opportunities both on tankers, container vessels, and drybulk vessels at the moment. For container vessels, what we have seen is the technology change where we see that the liner companies are very interested still in the new and modern more efficient units. While the bigger problem, I think will be for older units, which don't have the new eco features and which are designed for much higher speeds, basically made much more narrow and therefore have different loading capacities. So despite the relatively -- the very soft books -- you call it books rate market for the liner companies, they are still very keen to get more of the efficient assets, which is maybe illustrated by the vessel that we will take delivery of later this week where the charter at Maersk is urging us to get that vessel ready as quick as we can simply because they want to slot into their services. So we see more opportunities there, and I think if anything with the relative softness in some of the market segments that makes it more interesting to invest, because when we invest, we invest for the long-run and not necessarily on the backlog short-term movements in the underlying spot market. So investing in the low-end like we did for the drybulk vessels, we invested assets at whole quite substantially in value made that entry point more interesting.

And do you think the tankers are a little too far into the cycle or are there opportunities there that you are currently looking at?

Well, there are definitely opportunities there as well. You generally don't see that many long-term charter opportunities on the tanker side, but we are looking at some opportunities there as well, and of course, if we see deals that match our risk reward parameters, we would be keen also to invest in tankers. I would say generally, the replacement costs, the newbuilding prices are at relatively low levels -- historic low levels, I would say. And that could make an interesting entry point into many of these segments if you are investing for the long run.

Right. And moving over, I mean you have the strong liquidity position, can you elaborate a little bit, you have a convert coming due early next year, a little bit of your thoughts there and what your options are?

Yes. We have $125 million convertible loan coming due in February, and for that loan, we have of course several options, I mean we can repay it with our cash at hand or we can even settle that to convertible with shares. We will of course not comment anything specifically on that until we have to which is essentially 30 days before maturity of that bond loan, but I think given our strong liquidity position, I don't think anyone would doubt our ability to what you say -- to take that out in cash or utilize any of the other options if we think that is more beneficial for the company.

Okay. Thank you. That's all I had.

Yes. Thank you.

Thank you. We will now take our next question from Marcelo Brisac of Armory. Please go ahead. Your line is open.

Hi, good afternoon, and thank you very much for the call. I was just wondering, if you can clarify a little bit what were the charges on derivatives, and I understand they were non-cash, we are just trying to see where they are coming from, is there any offset to that or if eventually the non-cash item is going to become a cash item, just trying to understand a little bit here. Thank you.

Yes. Thank you. We had $12.4 million in non-cash mark-to-market on derivatives which are interest rate swaps. What we have focused on for the company is to ensure that we have long-term hedges in place for financings, which is also matching the cash flow. Under U.S. GAAP, there is a very rigorous analysis leading up to whether it qualifies for hedge accounting where it will not flow over P&L and whether it does not specifically qualify for hedge accounting in the U.S. GAAP and therefore flows over the P&L. And the consequence of that given our significant hedge portfolio is that $12.4 million -- there was a $12.4 million impact this quarter. Last quarter, we had a positive impact of around $5 million. So this could go both ways depending on interest rate levels. Of course, when interest levels comes down, we have a negative impact and if it goes up, we have a positive impact. At least when you look at the interest rate levels currently where you have five-year swap rates at 1.6% which is close to 10 year low levels., I would say that we could hope that there would be more, call it, upside potential than downside potential with interest rates moving up. Overall, I would say that our agenda here is to ensure that we hedge our cash flows and whether or not we are qualified for hedge accounting on the U.S. GAAP, we think is secondary, but of course we see that from time-to-time where we have movements in interest debt levels, we have this what we say, unfortunate non-cash movements on our P&L.

And so basically that's a hedge to your financing and the offset to debt would be lower financing expenses over the next several years, right?

That is correct. So typically when we make a charter, for instance for the three container vessels that we have recently acquired, we have agreed to a $210 million financing for these containerships, but -- and we have not yet hedged interest under those loans. That is something we would probably do overtime because we believe that when we have made the charter, we have this ability in cash flows, we have structured the financing, then we think it makes sense for us to also look in the interest rate curve effectively so we don't, what we say, speculate on interest rate movements over time. I would also say that when we make investments of course we make assumptions for interest rate levels -- long-term interest debt level swap rates on forward curves and generally over the last few years we have managed to swap at more attractive levels than what we have used in our calculations when leading up to the investments.

Okay. Thank you.

Thank you.

Thank you. We will now take our next question from Fotis Giannakoulis at Morgan Stanley. Please proceed. Your line is open.

Yes. Hi, Ole. And congratulations for a great quarter. I want to ask you how do you view the residual risk in terms of the offshore vessels? I understand that the debt is -- it is at quite low levels, but is there anything there that we should be concerned, any restructuring or renegotiating of the contracts? And also, how do you view the investment of this capital when this contracts expire and you will have to recover the cash flow from new projects?

Yes. The main bulk of our rig exposure is linked to Seadrill, and two, deepwater rigs we acquired in 2008 and one jackup drilling rig we acquired in 2014. All these three rigs have 15 year charters, whether our purchase obligations or quick call at the end of the charter for each of them. So that means that for instance, the West Hercules, which has a charter running up to 2023, there is a purchase obligation at the end of Seadrill at $135 million. So when we get on to 2023, they have to repurchase it at that level and then we have to reinvest that capital. We believe that we -- hopefully should be able to reinvest that capital in an accretive manner. If we are not able to reinvest it, of course, then we would sit with that amount in cash. The same also goes for West Taurus very similar deal their purchase obligation is $149 million and for the West Linus, again, this is the charter that runs out to 2029 there is purchase obligation of -- let me just think -- I have to get back to you on that -- its all spread out in the charter backlog that we distribute over time. But -- so we have a yes, we have a reinvestment issue at the very end of the charter period, but we think that is manageable from an overall portfolio perspective. We also have a jackup drilling rig at 2007 built rig, which is on a shorter charter to an Indonesian operator called Apexindo. That charter -- the sub-charter has ended so the rate case ideal at the moment, but here we are looking at our modern rig, we think it's got a long remaining useful life. And we will see what we could do -- maybe we could adjust the rates on what and stretch it or there are alternatives there. But nothing I would say that would be material or dramatic for the company.

Given the situation in both offshore market and the drybulk sector, have there been any discussions over potential restructuring of this contract in exchange for longer duration or higher upside? And also if you would like to comment about the opportunities in the drybulk, I heard earlier Herman Billung talking about that if you had more capital he would love to invest at the current asset prices, whether you share this use and whether we can see you getting into more sale lease back transactions in the drybulk sector?

Yes. I cannot speak -- discuss specific kind of discussions we might have, but I would maybe just make a general comment, which is -- I will be using Frontline as an illustration -- where we agree to restructuring with Frontline back in 2011 leading up to the final adjustment earlier this year, where we -- and what we got out of that was a combination of cash back in 2011, we got our cash sweep structure and now we got an improved profit split of lower base rate levels. So our objective is of course, all the way to take care of our interest, our shareholders interest and try to maximize upside if and when there are -- if and when there is requirement to do some adjustments. But on an overall basis, from a portfolio perspective, it's a very small proportion of our activity that could be potentially at -- call it -- at risk of having to do some adjustments. But rest assured we will make sure we take care of our company's interest.

And regarding the opportunity for drybulk?

Exactly. So regarding opportunities in drybulk, we see of course, the drybulk market being at almost historic low levels, quite right now. Of course, when we make our investments, we make investments based on the long run and not what we say short-term fluctuations in the market. What we see now is we have quite attractive replacement cost levels. And of course, in soft markets, you could also be able to pick up assets at very attractive prices from, what we say motivated sellers. So yes, we could definitely do more -- we also do more charters in the drybulk market similar type of deals that we did with Golden Ocean. But of course, if you look at these different segments over time, we have seen that in the drybulk space there have been much more, we call it counterparty defaults than they have been in most of the other segments. So we have to be very careful with who we charter to and how we structure the deal. So we don't risk in soft markets that they are not able to pay the charter.

Thank you very much, Ole.

Thank you.

Thank you. [Operator Instructions] We do not have any further questions at this time. I will pass it back to the speakers.

Thank you. Then, I would like to thank everyone for participating in our third quarter conference call. If you have any follow-up questions, there are contact details in the press release or you can get in touch with us through the contact pages on our webpage shipfinance.bm. Thank you.