Good day and welcome to the First Quarter 2017 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, sir.

Thank you and welcome everyone to Ship Finance International and our first quarter conference call. With me here today, I also have our CFO, Harald Gurvin and 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 within the Securities and Exchange Commission. The Board has declared a quarterly dividend of $0.45 per share. The dividend represents $1.80 per share in an annualized basis or nearly 13.8% dividend yield based on closing price of $13.05 on Friday. This is our 53rd consecutive dividend, and we are now paid nearly $23 per share in dividends or more than $1.8 billion in aggregate since 2004. Aggregate charter revenues recorded in the quarter, including a 100% owned subsidiaries accounted for as investments in Associate was approximately $152 million, and the EBITDA equivalent cash flow in the quarter was approximately $119 million. Last 12 months, the EBITDA equivalent has been approximately $482 million. And the reported net income for the quarter was $32 million or $0.35 per share after non-cash amortization of deferred charges of $2.4 million relating to financing arrangement and a $1.5 million positive impact arising from mark-to-market valuations of hedging instruments. In…

Thank you, Ole. On this slide we have shown a pro forma illustration of cash flows for the first quarter compared to the fourth quarter. Please note that this is only a guideline to assess the Company's performance and is not in accordance with U.S. GAAP. For the first quarter, total charter revenues before profit share were $143.8 million or $1.54 per share, slightly up from the previous quarter. VLCC and Suezmax revenues were slightly down in the quarter due to the sale of VLCC Front Century in March and lower revenues from the two Suezmax tankers trading in the pool with two sister vessels owned by Frontline. Liner revenues were up in the quarter due to the true quarter of earnings on the 19,000 TEU container vessel delivered in December and delivery of the second 19,000 TEU container vessels in March both with 15 year charters to MSC. The second vessel will have true earnings effect in the second quarter. Offshore revenues were slightly down due to fewer days in the first quarter compared to the fourth quarter and a scheduled reduction in the bareboat rates for West Taurus. We recorded a profit share of 5.6 million under the 50% profit share agreement with Frontline down from 6.8 million in the previous quarter. The crude oil tanker market remained relatively strong into the first quarter but softened towards the end of the quarter and continued downward into the second quarter. We also recorded a profit share of approximately 60,000 relating to some of our other vessels. But overall this summarizes to an adjusted EBITDA of 118.7 million for the quarter for $1.27 per share down from $120.6 million in the previous quarter. If you look at the cash mix from the segment and compared to the mix two years…

[Operator Instructions] And we will take our first question today from Magnus Fyhr of Seaport Capital. Please go ahead. Please go ahead caller, your line is open.

To start a question on kind of the opportunities going forward, I mean you guys have been pretty quiet as far as the acquisition front which is understandable with the Seadrill restructuring hanging over you guys, can you talk a little bit about where you see opportunities on the different segments, is the Container segment the best area of future investments or what are you guys seeing currently?

Yes thank you, Magnus. We are currently looking at opportunities, I would say across the board or in terms of sort of market segment focus. We do think the containerships are interesting, of course in the near term there is a - relative soft chartering market for containerships. There was some improvement early this year that has softened off a little bit, but we think longer term certainly for the new - call it more efficient type of vessels, we believe there could be very interesting opportunities also going forward. But we also see good investment opportunities or call it project opportunities in our other segments, so we're looking at deals potentially in the tanker side. We’re looking at deals on the drybulk side and also in the gas carrier business there could be opportunities. I would say we would be a bit careful at least now in the near term in the offshore space. So certainly what we say when we still have the Seadrill restructuring going on, but at the same time, if we have the right type of counterparty with the right type of asset, we could also look at opportunities there. We have a decent capital available. We had around $250 million of cash at the end of the first quarter. Of course we believe what we say, it sounds to have a solid balance sheet, but we hope to also deploy some more capital going forward. We're taking delivery of two last vessels in the new building program later this year with a relatively small net investment and we are well-positioned for new opportunities.

Okay, thank you. And the ConocoPhillips contract was extended longer backlog, but at slightly reduced rate, I guess has there been any discussion there with Seadrill regarding that rig or is that going to be part of the bigger restructuring package?

We have not discussed that rig in particular relating to the charter specifically, and of course it’s very positive that in the context of a relatively soft drilling market, a quality operator like ConocoPhillips who has had the rig on charter for three years now that they want to extend the charter for that rig until 2028. It demonstrates both that this asset is performing well and also that ConocoPhillips has confidence in - call it ability to Seadrill to continue operating that asset for them with a quality standard and efficiency standard that they of course would expect. That rig is drilling at the Ekofisk field in the North Sea where you have a very long drilling program lined up already. There is some market adjustment factor kicking in from 2019, so exactly what the rate will be down the road is not known, but of course this is a harsh environment to specialized type of rig, so we do expect that the rates in this area will be higher than for I would say generic standard type jack-ups in the market. But relating to Seadrill, we still have that contractual charter with them where we have - one rate until 2019 and then stepping down thereafter. But as I mentioned in earlier when I discussed all the drilling segment, we are in a discussion with Seadrill relating to the three drilling rigs so but - unfortunately not give any sort of specifics on what our discussions are relating to the individual rates, but of course it's clear that there is certainly a need for this rig for the long run.

Thank you. It’s good to see that you guys extended the contract or that Soehanah is going back to work. Is there option period there, I guess it’s was 4 million during the fixed period, can you provide any color on what the option is that at the same rate or is that at a higher rate?

It’s at the same rate and of course this is at the oil company - it's at the oil company's option to extend. So we have not - call it included that sort of in the guiding or backlog, but we believe it's a very positive that the rig is going back to work and having a warm rig is always better than having a stacked rig, one thing is that of course you save the stacking cost but the other is that – looking through this downturn in the drilling market, we believe when market does come back, we believe the warm assets will be clearly preferred by the oil companies, and therefore despite the charter rate here not being as high as one could wish for, we believe that it positions the rig well for what we hope will be a recovery in that segment.

[Operator Instructions] We’ll now move on to our next question which comes from Fotis Giannakoulis calling from Morgan Stanley. Please go ahead.

Ole I want to focus again on the Seadrill relationship, can you clarify what happens in a scenario of Chapter 11, what is the relationship between UMC drill and how does the intermediate companies the single purpose company that own the rigs work?

Yes, the relationship we have with Seadrill is what we call it the structure of it, is that we have chartered these three rigs on individual charters to three subsidiaries of Seadrill but they're all fully guaranteed by Seadrill Limited. So we have outlined in our 20-F report where call it risk scenarios relating to call it the Chapter 11 - the potential Chapter 11 proceedings as Seadrill has indicated when they reported earnings last week that restructuring could include such call it features or that. We are of course on our side there are two things one, there are either the institution of Chapter 11 is to ensure that the commercial part of the company continues while the financial part is being restructured. And as we just talked briefly in our early heard about the West Linus which now has been extended for a long period, which is of course very positive I would say in any restructuring discussion. We cannot discuss specifics on what we say what we are talking to Seadrill about, Seadrill did file in January they filed some documents relating to the discussions they had in the fall and they haven't given any more specifics to-date. So I can unfortunately not be specific on that, we do of course take our own call it legal advice relating to whether it’s Chapter 11 or other call it potential situations and our objective here is of course to maximize risk adjusted return for us. We do believe that having a stronger call it Seadrill is a benefit for all and I would say all other stakeholders in that company. So our intention is to contribute in a positive way and we also if you look at the structure we have these rigs on charter. We also have financing where we have limited guarantees. So you could say that well the loan amounts associated with all these three rigs including the West Linus is around $850 million in aggregate. Our guarantee exposure you could say that the ship financial exposure is in a worst case scenario is limited to $240 million reducing to $235 million in June. So this is all factors that we will take into any discussion or consideration when we look at what solution could come out.

So let me understand - there is a possibility obviously to restructure the leases what the possibility of cancel completely the leases and – what is your relationship are you a secured lender to Seadrill or you’re an unsecured lender how would you be treated in a situation that the leases are being canceled?

Of course this is a very hypothetical setting because they are performing a 100% on the charters and so this is just relying on what we say what they have communicated to the market relating their financial reform. So but you can - you can look at the - I mean these are bareboat charters. So from that perspective of course there are charter arrangements. At the same time, they have very long-term and have very call it financial features relating to them including the purchase obligation at the end of the charter period. I cannot give any sort of specifics on what our current thinking, I hope you appreciate that, I mean as we are like you say in some certain discussions, we do not want to we choose specifics on this specific on what we believe, I'll call it outcome would be but we are as I mentioned focused on maximizing of course you know our ARPU or call it precision in that restructuring and we believe if you look at the assets talked about the West Linus, we also have the West Hercules which is currently idle in Norway but which was upgraded for very significant amounts just a few years ago and is now fully winterized for Arctic operations with all features. Of course if you look there's been quite a bit of activity in that market segments, you've seen a few charters there. So we believe that segment could be - call it in that – in the drilling segment maybe one of the earlier sub-segments to pick where the activity could pick up and where there are relative few assets available. So then you could sort of look at the various charters and in certain scenarios, so you could say that maybe we could even take the rig back and then that could be a benefit for us. I'm not saying that that is what we are discussing at the moment, I'm just saying that there are various options and call it available to us and we want to of course maintain our negotiation flexibility.

Thank you, Ole for the detailed answer in impossible to answer question. I want to go a little bit on your liquidity. Your liquidity is very strong and it’s relatively unchanged compared to the previous quarter, I wonder there are certain refinancing that were coming due the two Car Carriers that you mentioned that we are looking for redeployment and I was wondering these two Car Carriers how this refinancing is going and also the maturities of the Norwegian bond and the remaining convertible, how are you thinking of refinancing this?

This is Harald there. I think if you look at two Car Carriers those have a very limited payment after at the end of the loan in December. So that is something, we were looking into once we have more clarity on deployment situational thresholds. But that is a very manageable situation. If you look at the Norwegian bond that is of course coming out in October, that market is definitely open for us and also the same with convertible coming up in February next year where we took out a good chunk when we did the convertible in October last year. So but if you look at Norwegian bonds of course that is something we can also cash out without liquidity if we want to.

Yes thank you, Harald. That's exactly what I'm trying to model here is, are you going to take it out with your cash position or you are thinking of refinancing of the same amount or even higher amount with maturities. I’m talking about issuing a new convertible for the remaining and maybe $5 million and a small Norwegian bond of $65 million?

What we always try to maintain is flexibility, so yes I mean you as you know we have two convertibles with two I would say distinct different features attracting, I would say a different investor base, one with higher conversion call it higher dividend adjustment factor with lower coupon and the other with a higher coupon with lower dividend adjustment factor which has really tailored because we wanted to attract maybe different investor audiences. We believe the bond market is open both in Europe and in the U.S., so we would – we could look at both those opportunities and also if you look at the convertible, we have coming due in 2018 you could argue that with the dividend we just announced and if investors believe we can continue pay dividends, you could some would argue that maybe that would also be converted effectively to equity by the investors, we also have a feature there where we can trigger conversion to share most of it at the time if we want to. Again it’s all about building flexibility for ourselves, so I think we have a pretty robust financing situation and flexibility with what we say limited and very manageable refinancing coming due next few months.

Thank you, Ole. One last question I want to see how you're thinking about the acquisition opportunities in across the different sectors, your tanker exposure is being reduced has it been reduced significantly the last few years and it seems that with exception of two older that two new building vessels unless you invest additional capital in this segment is going to become a very small portion of your exposure. Do you see additional opportunities in this sector any potential sale and leasebacks that you can rebuild your exposure in the tanker sector and how do you view if not how do you view the dividend going forward given the fact that the profit share is reducing given the lower market and the sale of the older assets?

We have a tanker fleet which is correct that is reducing which is really a consequence of the original deal done back in 2004 so more than 13 years ago and as we all know vessels have a finite lives, you have to make sure that you continuously renew the fleet if you want to have a sustainable model or we started with all our assets in one basket, we had only tankers in the fleet at the beginning. So our objective then earlier on was to make sure that we diversify effectively away from only tankers to have resilience to market volatility. We are looking at opportunities, I would say also in the tanker market couple opportunities as we speak but what we prefer to like we say, we prefer to announce deals when we do them and not to be too specific on dollar amounts potentially to be invested or timing, it's all about doing it the right deal and not necessarily how to do deal because you have promised - call it promise the market. So we would have to come back to that. If you look at the dividend that we are paying and have paid typically the dividend or I would say generally which is we always say I mean the dividend is by the board quarter-by-quarter. And what they have guided is that when it's not linked to specific earnings in one specific quarter, it's typically a perspective of expectations for long-term distribution possibility. So you could say that the long-term dividend we call it we can pay, we will of course also be depending on – depends a little bit dependent on how we can deploy our capital in an accretive manner going forward in addition to renewing the fleet as we have continuously done over the years.

So that means that even if the profit share goes away and for a short period of time you would be willing to support the dividend using your existing liquidity?

I cannot give you specific guiding on that, as I said this is set by our Board, so I’m not - I cannot kind of give you specific details on that but as I said, the profit split has varied, some quarters it's been very, very high, other quarters it's been lower and dividend has previously not been directly linked to the profit share from the tankers. We also of course have a profit share from bulkers that could potentially kick in. It hasn't done it so far and didn't do it in the first quarter, but over the year we still have eight years remaining on those charters to Golden Ocean with a 33% profit share calculated on a quarterly basis. So over time as we see - the various segments go – I would say sort of up and down in a relative cyclical manner and hopefully we will also see some profit share coming out of those assets.

Thank you very much Ole, I appreciate all your thoughts.

We'll now move on to our next question today from Richard Diamond of Strait Lane Capital. Please go ahead.

Can you address the subject of Chinese leasing capital coming into the borrowing markets for shipping? They seem to be providing significant financing right now and I just wondered if you could give your opinions on their degree of discipline?

Yes thank you Richard. That market is significant and you’re absolutely correct there has been quite a bit of activity in that market. We ourselves have just recently taken delivery of two very large containerships financed with effectively Chinese lease capital. The benefit we saw there was cost efficient call it capital full 15 year maturity, so we don't have refinancing risk during call it the charter period and the financing period and also without recourse to Ship Finance. So for us we think what we say in addition to our other various funding sources, it certainly a market that we will continue to look at. That doesn't mean that it works for all and so if you really have to look at it from case-to-case and also there are certain asset types and this is general for various call it capital providers some banks prefer one type of assets other banks prefer other types of asset. So from time-to-time you have assets that you feel fit well with its capital provider and then you can make it work, but I think generally the Chinese capital market has been quite active and we believe it will continue to be active. We’ve seen the Japanese market also quite active, the classic shipping financiers – typically the European banks have not been that active last couple of years I would say partly I'm sure due to - call it the volatility on the offshore space. But I’m confident that most of the bigger banks also in the European market will continue to be there and support the market. For us it's important to have a diversification in our call it funding sources and not to be dependent on one single call it financier. So that's why we have in our portfolio, we have lease financing, we have Sinosure type back financing, we have traditional bank financing in the European market, and we are looking at what we say various financing options for our assets to both diversify and also optimize our capital.

Is it fair to say that these international markets favor the larger more sophisticated borrowers over the individual traditional ship owners? Thank you.

Absolutely you are 100% correct. What we have seen - I would say I started - obviously more in the traditional bank financing market the clear focus are the large listed entities -call it with access to multiple markets. That's also why we have a couple of bonds in the European market, we have a couple of convertibles in the U.S. market again it's all we could set off to ensure that we have access to various sources of capital. And if you are a bank financing in the shipping market and you know that underlying markets are from time-to-time very volatile. You have to ask yourself the question, who is the effectively lender of last resort. What many banks have experienced in the past is that they’ve lend out to a certain asset market for whatever reason has gone down and the bank has to come off with more money to effectively save the rest of their investment but they prefer our companies to have more resilience and therefore over time can be more robust in the market. So they clearly prefer the larger listed entities and Ship Finance now we have 13-year history, our stock is one of the most traded shipping stocks in the U.S. market. We have a relatively wide shareholder base and multiple products fit straight in the sweet spot I would say for what the banks ask for or wish for when they look their client.

[Operator Instructions] We'll now move on to our next question from [indiscernible]. Please go ahead.

Yes thank you for the information this morning. I was just wondering if the company is considering acquisition of any other ship leasing companies or maritime leasing companies that are out there with the share price that’s depressed relative to their book value? Thank you.

Yes we are always on the lookout for what we say accretive opportunities whether that is specific vessel acquisitions or what we say companies with portfolios of assets. Of course first and foremost the focus would be on the asset portfolio and what we say even you could say that – even if share price has come down that doesn't necessarily mean that the company is cheap, it all depends on the quality and what we believe our long-term a cash for characteristics of their assets. But the assets certainly something we would look at and for us it's really long-term accretion per share on a risk adjusted basis. But of course you could say that in certain situations if you have competed for deals say for an asset type and someone were willing to take it at a lower rate than we felt was appropriate. Of course then we wouldn't go around and buy that company later at a premium. So that also, so far we haven't been able to find situations where we believe - that where we have seen that we could buy companies in an accretive manner but we are obviously constantly evaluating situations and wouldn't hesitate to do that if we had opportunity.

[Operator Instructions] There appear to be no further questions over the telephone. Therefore I would like to turn the call back to speakers for any additional or closing remarks.

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

That will conclude today’s conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.