SFL Corporation Ltd.
SFL Corporation Ltd.
03/17/2025 | Press release | Distributed by Public on 03/17/2025 14:13
Annual Report for Fiscal Year Ending December 31, 2024 (Form 20-F)
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion should be read in conjunction with Item 4. "Information on the Company" and our audited consolidated financial statements and notes thereto included herein.
A. OPERATING RESULTS
Overview
We have established ourselves as a leading international maritime asset-owning company with a large and diverse asset base across the maritime and offshore industries. A full fleet list is provided in "Item 4. Information on the Company - D. Property, Plants and Equipment" showing the assets that we currently own and charter to our customers.
Fleet Development
The following table summarizes the development of our active fleet of vessels and rigs, including four chartered-in container vessels that are included in our associated companies and six container vessels and seven car carriers financed through sale and leaseback transactions.
| Total fleet |
Additions/ Disposals |
Total fleet |
Additions/
Disposals
|
Total fleet
|
||||||||||||||||||||||||||||||||||||||||
| Vessel type | December 31, 2022 | 2023 | December 31, 2023 | 2024 | December 31, 2024 | |||||||||||||||||||||||||||||||||||||||
| Oil Tankers | 10 | -3 | 7 | 7 | ||||||||||||||||||||||||||||||||||||||||
| Chemical tankers | 2 | -2 | 0 | 2 | 2 | |||||||||||||||||||||||||||||||||||||||
| Dry bulk carriers | 15 | 15 | 15 | |||||||||||||||||||||||||||||||||||||||||
| Container vessels | 36 | 36 | -3 | 33 | ||||||||||||||||||||||||||||||||||||||||
| Car carriers | 3 | 2 | 5 | 2 | 7 | |||||||||||||||||||||||||||||||||||||||
| Jack-up drilling rig | 1 | 1 | 1 | |||||||||||||||||||||||||||||||||||||||||
| Ultra-deepwater drilling rig | 1 | 1 | 1 | |||||||||||||||||||||||||||||||||||||||||
| Product tankers | 6 | 6 | 3 | 9 | ||||||||||||||||||||||||||||||||||||||||
| Total Active Fleet | 74 | +2 | -5 | 71 | +7 | -3 | 75 | |||||||||||||||||||||||||||||||||||||
Between January 1, 2025 and March 17, 2025, we agreed to sell a 1,700 TEU container vessel to an unrelated party, with expected delivery in the second quarter of 2025.
Also between the same period, Golden Ocean exercised the purchase options to buy the eight Capesize dry bulk carriers which were leased to a fully guaranteed subsidiary of Golden Ocean. The vessels are expected to be delivered in the third quarter of 2025.
Also between the same period, two of the seven car carriers, financed through sale and leaseback transactions, were repurchased by us.
Factors Affecting Our Current and Future Results
Principal factors that have affected our current results, or are expected to affect our future results of operations and financial position, include:
•the earnings of our vessels under time charters or rigs under drilling contracts, including Maersk, Hapag Lloyd, Trafigura, ConocoPhillips, Volkswagen, Golden Ocean Charterer and other charterers;
•the earnings of our vessels under short term charter or trading in the spot market impacted by freight market conditions;
•the amount we receive under the profit sharing arrangements with the Golden Ocean Charterer, and sharing arrangements on fuel cost savings with Maersk and Eukor;
•the earnings and expenses related to any additional vessels that we acquire;
•earnings from the sale of assets and termination of charters;
•vessel management fees and operating expenses;
•vessel impairments;
•administrative expenses;
•interest expenses;
•mark-to-market movements on investment in equity securities; and
•mark-to-market movements on derivative financial instruments.
Revenues
As discussed above, Frontline Shipping Limited ("Frontline Shipping") was our principal customer when we were spun-off from Frontline in 2004. Since then, we have increased our customer base from one to more than 10 customers including the Golden Ocean (which was a related party until March 12, 2025). Frontline Shipping is no longer a customer, following the sale of the last two VLCC tankers that were leased to them in April 2022.
As of December 31, 2024:
•14container vessels on time charters to Maersk accounted for approximately 23%of our consolidated operating revenues (December 31, 2023: 28%, 16vessels).
•Fourcar carriers on time charter to Volkswagen accounted for approximately 8%of our consolidated operating revenues (December 31, 2023: 3%, threecar carriers).
•Seventankers on time charter to Trafigura accounted for approximately 7%of our consolidated operating revenues (December 31, 2023: 8%, sevenvessels).
•Six*container vessels on time charter to Hapag Lloyd accounted for approximately 6%of our consolidated operating revenues (December 31, 2023: 1%, onevessel).
•One jack-up drilling rig on drilling contract revenue with ConocoPhillips accounted for approximately 7% of our consolidated operating revenues (December 31, 2023: 10%, onerig).
* During the year ended December 31, 2024, five vessels were redelivered from Evergreen Marine Corporation (Taiwan) Ltd. and its affiliate Evergreen Marine (Singapore) Pte Ltd. ("Evergreen") to us and commenced the installation of efficiency upgrades. In September 2023, one of the vessels was redelivered from Evergreen to us and commenced the installation of efficiency upgrades. Following the installation of these upgrades, the vessels commenced a time charter contract with Hapag Lloyd for a duration of five years.
Our revenues arise primarily from our long-term, fixed-rate charters and as shown in Results of Operations below. Our income is derived from time charter income as well as drilling contract revenues, voyage charter and pool income and finance lease interest income.
Our future earnings are dependent upon the continuation of existing lease arrangements and our continued investment in new lease arrangements. Future earnings may be significantly affected by the sale of vessels or a default by counterparties under our chartering agreements. Investments and sales which have affected our earnings since January 1, 2024, are listed in Item 4 above under acquisitions and disposals. Some of our lease arrangements contain purchase options which, if exercised by our charterers, will affect our future leasing revenues.
We have seven dry bulk carriers trading in the spot or short-term time charter market, where the effects of seasonality may affect the earnings of these vessels. We also have one chemical tanker trading in a pool alongside similar third party owned vessels.
We have revenue under profit sharing agreements with some of our charterers, in particular with Golden Ocean. Revenues received under profit sharing agreements depend upon the returns generated by the charterers from the deployment of our vessels. These returns are subject to market conditions which have historically been subject to significant volatility. During 2024, our eight Capesize dry bulk carriers on long-term charter to the Golden Ocean Charterer that were agreed to be sold to Golden Ocean in 2025, included profit sharing arrangements whereby we earn a 33% of profits earned by the vessels above threshold levels.
In May 2019 and March 2020, we agreed to extend the charters with Maersk on four 8,700 TEU container vessels (San Felipe, San Felix, San Franciscaand San Fernando) and three 9,300 to 9,500 TEU Container vessels(Maersk Sarat, Maersk Skarstind andMaersk Shivling). The initial periods of the charters were extended for all vessels at a revised charter hire rate and for extended periods ranging between approximately three to four years, with additional optional periods at the charterer's option. As part of the charter agreement, we agreed to finance the scrubbers to be installed on these vessels and receive a share of the cost savings achieved by the charterer on fuel price from using the scrubbers. Also in November 2022, we took delivery of a 4,900 CEU car carrier, Arabian Sea, in combination with a six-year charter to Eukor which included similar share of the fuel savings in the charter agreement.
Vessel and Rig Management and Operating Expenses
Our vessel-owning subsidiaries with vessels on charter to Golden Ocean Charterer have entered into fixed rate management agreements with Golden Ocean Management, a wholly-owned subsidiary of Golden Ocean, under which they are responsible for all technical management of the vessels. These subsidiaries each paid Golden Ocean Management a fixed fee of $7,000 per day per vessel, for all technical management of the vessels.
In addition to the eight vessels that we had on charter to Golden Ocean Charterer in 2024 until Golden Ocean exercised its purchase options on such vessels, we also have 22 container vessels, seven car carriers, seven Suezmax tankers, nine product tankers and one chemical tanker employed on time charters, seven dry bulk carriers trading in the spot or short-term time charter market and one chemical tanker which is trading in a pool. We have outsourced the technical management for these vessels and we pay operating expenses for the vessels as they are incurred. Operating expenses include mainly crew costs, repairs and maintenance, spares andsupplies, insurance, management fees and drydocking. The remaining vessels we own that have charters attached to them are employed on bareboat charters, where the charterer pays all operating expenses, including maintenance, drydocking and insurance.
In addition, we engage Odfjell Technology Ltd. and Odfjell Drilling Ltd. (collectively "Odfjell"), for the operational management of our two drilling rigs, Linusand Hercules, respectively. We pay Odfjell a management fee and provide funding for the rigs' running costs as they are incurred.
Vessel and Rig Impairments
The vessels and rigs held and used by us are reviewed for impairment on a quarterly basis and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, an impairment charge is recognized if the estimate of future undiscounted cash flows expected to result from the use of the vessel or rig and its eventual disposal is less than its carrying amount.
Administrative Expenses
Administrative expenses consist of general corporate overhead expenses, including personnel costs, property costs, legal and professional fees, and other administrative expenses. Personnel costs include, among other things, salaries, pension costs, fringe benefits, travel costs and health insurance. We have entered into administrative services agreements with Frontline Management (Cyprus) Ltd., previously named Frontline Management (Bermuda) Ltd. ("Frontline Management"), Seatankers, Front Ocean Management AS and Front Ocean Management Ltd. (collectively "Front Ocean"), under which they provide us with certain administrative support services, and we have agreed to reimburse them for reasonable third party costs, if any, advanced on our behalf. Some of the compensation paid to Frontline Management, Seatankers, Front Ocean and Golden Ocean is based on cost sharing for the services rendered, based on actual incurred costs plus a margin.
Our chief information security officer (CISO), who is employed by Front Ocean, a related party, is responsible for assessing and managing cybersecurity threats, reporting cybersecurity updates and reporting to the Board material cybersecurity incidents. For more information on our cybersecurity risk management and strategy, please see "Item 16K. Cybersecurity."
Mark-to-Market Movements on derivative financial instruments
In order to hedge against fluctuations in interest rates, we have entered into interest rate swaps which effectively fix the interest payable on a portion of our floating rate debt. We have also entered into interest/currency swaps in order to fix both the interest and exchange rates applicable to the payment of interest and eventual settlement on our floating rate NOK bonds. Although the intention is to hold such financial instruments until maturity, U.S. GAAP requires us to record them at fair value in our financial statements. Adjustments to the mark-to-market valuation of these derivative financial instruments, which are caused by variations in interest and exchange rates, are reflected in results of operations and other comprehensive income. Accordingly, our financial results may be affected by fluctuations in interest and exchange rates.
Mark-to-Market Movements on investment in equity securities
We hold investments in shares consisting of approximately 1.3 millionshares in NorAm Drilling with a fair value of $3.7 million, trading on the Euronext Growth facility in Oslo. Upon the adoption of ASU 2016-01 from January 2018, we recognize any changes in the fair value of these equity investments in the statement of operations.
Interest Expenses
Other than the interest expense associated with our senior unsecured sustainability-linked bonds, and our senior unsecured NOK bonds, the amount of our interest expense will be dependent on our overall borrowing levels and may significantly increase when we acquire vessels or on the delivery of newbuildings. Interest incurred during the construction of a newbuilding is capitalized in the cost of the newbuilding. Interest expense may also change with prevailing interest rates, although the effect of these changes may be reduced by interest rate swaps or other derivative instruments that we enter into.
Equity in earnings of associated companies
In the year ended December 31, 2024 and December 31, 2023, we earned income from our 49.9% investment in River Box Holding Inc. ("River Box"), which has been accounted for using the equity method.
The total income from our equity and loan investment in River Box accounted for 5.6% of our net income in the year ended December 31, 2024 (December 31, 2023: 8.8% of net income).
For information regarding various market risks, including interest rates and foreign currency fluctuations, please see Item 11. Quantitative and Qualitative Disclosures About Market Risk."
Results of Operations
Year ended December 31, 2024, compared with year ended December 31, 2023
Net profit for the year ended December 31, 2024, was $130.7 million compared to a net profit of $83.9 million for the year ended December 31, 2023.
|
(in thousands of $)
|
2024 | 2023 | |||||||||
| Total operating revenues | 904,404 | 752,286 | |||||||||
| Gain on sale of assets | 5,374 | 18,670 | |||||||||
| Total operating expenses | 603,061 | 530,772 | |||||||||
| Net operating income | 306,717 | 240,184 | |||||||||
| Interest income | 13,765 | 13,636 | |||||||||
| Interest expense | (182,985) | (167,010) | |||||||||
| Loss on purchase of bonds and debt extinguishment | (1,317) | (540) | |||||||||
| Other non-operating items (net) | 2,306 | (1,858) | |||||||||
| Equity in earnings of associated companies | 2,798 | 2,848 | |||||||||
| Tax expense | (10,631) | (3,323) | |||||||||
| Net income | 130,653 | 83,937 | |||||||||
Operating revenues
|
(in thousands of $)
|
2024 | 2023 | |||||||||
| Sales-type leases and leaseback assets interest income | 2,439 | 6,192 | |||||||||
| Profit sharing revenues | 16,679 | 13,162 | |||||||||
| Time charter revenues | 619,384 | 544,434 | |||||||||
| Voyage charter and pool revenues | 18,909 | 33,648 | |||||||||
| Drilling contract revenues | 236,650 | 146,890 | |||||||||
| Other operating income | 10,343 | 7,960 | |||||||||
| Total operating revenues | 904,404 | 752,286 | |||||||||
Total operating revenues increased by 20.2% in the year ended December 31, 2024, compared with the year ended December 31, 2023.
Sales-type leases and leaseback assets interest income
In the year ended December 31, 2024, sales-type leases interest income arose on nine container vessels on long term charters to MSC, two of which were sold in March 2024. In the year ended December 31, 2023, we had sales-type leases interest income on nine container vessels on long term charters to MSC and leaseback interest income from one VLCC which was reported as a leaseback asset until its disposal in August 2023.
In general, sales-type leases and leaseback assets interest income reduces over the terms of our leases. A greater proportion of rental payment is treated as repayment of investment in the lease or loan and progressively, as the capital is repaid, interest payments by the applicable lessee decreases. The $3.8 million decrease in sales-type leases and leaseback assets interest income from 2023 to 2024 is mainly a result of the disposals of two container vessels andone VLCC.
Profit sharing revenues
We had a profit sharing arrangement related to the eight Capesize dry bulk vessels on charter to a subsidiary of Golden Ocean, in 2024, whereby we earned a 33% profit share above the base charter rates, calculated and paid on a quarterly basis. In the year ended December 31, 2024, we recorded a profit share revenue of $6.4 million under this arrangement. No profit share revenue under this arrangement was recorded in 2023. The increase is attributable to more favorable rates in 2024 for the Capesize dry bulk vessels.
In the year ended December 31, 2024, we recorded $10.3 million from fuel saving arrangements relating to seven container vessels on charter to Maersk, following the installation of scrubbers and one scrubber-fitted car carrier on charter to Eukor (2023: $13.2 million relating to seven container vessels and one car carrier). We have an arrangement for these vessels whereby it is entitled to a share of the fuel savings dependent on the price difference between IMO compliant fuel and IMO non-compliant fuel.
Time charter revenues
During 2024, time charter revenues were earned by 23container vessels, seven car carriers, 15 dry bulk carriers, sevenSuezmax tankers, nine product tankers and one chemical tanker. The $75.0 million increase in time charter revenues in 2024 compared with 2023, was mainly the result of the delivery of two newbuilding 7,000 CEU car carriers in January 2024 and March 2024, one chemical tanker in August 2024 and three product tankers between June and October 2024. We also took delivery of two other newbuilding 7,000 CEU car carriers in September 2023 and November 2023 respectively.
Voyage charter and pool revenues
During 2024, voyage charter and pool revenues were earned by six dry bulk carriers which are sometimes chartered on a voyage-by-voyage basis and one chemical tanker which was delivered in August 2024 and commenced trading in a pool. During 2023, voyage charter and pool revenues were earned by two Suezmax tankers, Glorycrownand Everbright, which were trading in a pool together with two similar tankers owned by Frontline, two chemical tankers and five dry bulk carriers which were occasionally chartered on a voyage-by-voyage basis. The $14.7 million decrease in voyage charter and pool revenues in 2024 compared to 2023, was mainly due to the sale of the two Suezmax tankers and two chemical tankers between March 2023 and June 2023. This decrease was slightly offset by pool revenue earned from the delivery of SFL Arubafrom August 2024.
Drilling contract revenues
In the years ended December 31, 2024 and December 31, 2023, we earned drilling contract revenues from our two drilling rigs. The drilling rig Linushas been operational with ConocoPhillips, since its redelivery from Seadrill in September 2022. In May 2024, Linusunderwent its second SPS which lasted until the end of July 2024. The drilling rig Herculeshas been contracted on a short-term basis, since its redelivery from Seadrill to SFL in December 2022. In June 2023, Herculesmobilized to Canada for a drilling contract with ExxonMobil which was completed in September 2023. In November 2023, the rig commenced a drilling contract with Galp Energia in Namibia which was completed in May 2024. In July 2024, the rig commenced a new drilling contract with Equinor in Canada which was completed in the end of October 2024. Drilling contract revenues increased by 61% in 2024, compared to 2023, mainly because the drilling rig Herculesundertook an SPS and certain upgrades which lasted until June 2023. This increase was slightly offset by the SPS of Linus in 2024.
Gain on sale of assets and termination of charters
In the year ended December 31, 2024, a net gain of $5.4 million was recorded arising from the disposal of the 1,700 TEU container vessel Green Aceand the two 5,800 TEU container vessels MSC Margaritaand MSC Vidhi.
In the year ended December 31, 2023, a net gain of $18.7 million was recorded arising from the disposal of two Suezmax tankers, Glorycrownand Everbright, two chemical tankers, SFL Weserand SFL Elbeand one VLCC, Landbridge Wisdom, previously on charter to Landbridge.
Operating expenses
|
(in thousands of $)
|
2024 | 2023 | |||||||||
| Vessel and rig operating expenses | 343,303 | 293,756 | |||||||||
| Depreciation | 239,181 | 214,062 | |||||||||
| Vessel impairment charge | - | 7,389 | |||||||||
| Administrative expenses | 20,577 | 15,565 | |||||||||
| 603,061 | 530,772 | ||||||||||
Vessel operating expenses include operating and occasional voyage expenses for the container vessels, dry bulk carriers, product, chemical and Suezmax tankers and car carriers operated on a time charter basis and managed by related and unrelated parties. Vessel operating expenses also include voyage expenses from our six dry bulk carriers operating in the spot market in the year ended December 31, 2024. In addition, vessel operating expenses include predelivery and drydocking costs and payments to Golden Ocean Management AS of $7,000 per day for each vessel chartered to Golden Ocean Charterer, in accordance with the vessel management agreements.
Vessel and rig operating expenses increased by $49.5 million in the year ended December 31, 2024, compared to 2023. The increase was mainly driven by the delivery of two newbuilding 7,000 CEU car carriers in January 2024 and March 2024, two chemical tankers in August 2024 and three product tankers between June and October 2024. We also took delivery of two other newbuilding 7,000 CEU car carriers in September 2023 and November 2023 respectively. This increase was slightly offset by the sale of two Suezmax tankers and two chemical tankers between March and June 2023. In addition, there was an increase in dry dock costs as seven more vessels dry docked in the year ended December 31, 2024, compared to the same period in 2023.
The increase in vessel and rig operating expenses was also due to increased operating expenses of the ultra-deepwater drilling rig, Hercules. The rig undertook its third SPS and related upgrade work which lasted until June 2023. Following that, the rig entered into drilling contracts and therefore incurring operating expenses. The jack-up drilling rig, Linus,was redelivered from Seadrill to SFL in September 2022 and has been operational with ConocoPhillips since then. In May 2024, Linusunderwent its second SPS which lasted until the end of July 2024.
Depreciation expenses relate to vessels and rigs owned by us or vessels chartered-in under finance leases, that are not accounted for as investments in sales-type leases and leaseback assets. The increase in depreciation of $25.1 million for 2024, compared to the same period in 2023, was mainly due to the delivery of two newbuilding car carriers in January 2024 and March 2024, two chemical tankers in August 2024 and three product tankers between June and October 2024. The increase in depreciation is also due to capitalized SPS costs for the rigs Herculesand Linusas well as to ballast water treatment systems and other capital upgrades for the rig Hercules.We also took delivery of other two newbuilding car carriers in September 2023 and November 2023. The above is slightly offset by the sale of one container vessel in December 2024 and two Suezmax tankers and two chemical tankers between March and June 2023.
No impairment charge was recorded in the year ended December 31, 2024. In the year ended December 31, 2023, we recorded an impairment charge of $7.4 million on two chemical tankers prior to their disposal in April 2023 and June 2023.
The $5.0 million increase in administrative expenses for 2024, compared with 2023, is mainly due to increased professional and legal fees arising from the business activities such as vessel acquisitions and financing, as well as legal fees arising from the Seadrill court case. For more information, please see "Item 8.A. - Legal Proceedings". In addition, there was a slight increase in marketing and investor relations costs.
Interest income
Total interest income increased to $13.8 million in the year ended December 31, 2024, comparing to $13.6 million in the year ended December 31, 2023, mainly due to higher interest received on bank and short-term deposits.
Interest expense
|
Interest expense
(in thousands of $)
|
Total borrowings and
lease liabilities
(in millions $)
|
||||||||||||||||||||||
| Year ended December 31, | As of December 31, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| U.S. dollar floating rate debt through 2030 | 77,497 | 79,767 | 1,503.9 | 1,014.8 | |||||||||||||||||||
| U.S. dollar fixed rate debt due 2026 | 13,946 | 9,570 | 147.4 | 148.9 | |||||||||||||||||||
| NOK700 million senior unsecured floating rate bonds due 2023 | - | 2,458 | - | - | |||||||||||||||||||
| NOK700 million senior unsecured floating rate bonds due 2024 | 2,049 | 5,551 | - | 68.4 | |||||||||||||||||||
| NOK600 million senior unsecured floating rate bonds due 2025 | 3,668 | 4,687 | - | 58.1 | |||||||||||||||||||
| NOK750 million senior unsecured floating rate bonds due 2029 | 1,403 | - | 63.6 | - | |||||||||||||||||||
| 4.875% senior unsecured convertible bonds due 2023 | - | 1,746 | - | - | |||||||||||||||||||
| 7.25% senior unsecured sustainability-linked bonds due 2026 | 10,875 | 10,875 | 150.0 | 150.0 | |||||||||||||||||||
| 8.875% senior unsecured sustainability-linked bonds due 2027 | 13,313 | 12,166 | 150.0 | 150.0 | |||||||||||||||||||
| 8.25% senior unsecured sustainability-linked bonds due 2028 | 8,507 | - | 145.2 | - | |||||||||||||||||||
| Lease debt financing through 2033 | 36,802 | 22,500 | 702.2 | 573.5 | |||||||||||||||||||
| Finance lease obligation | 14,482 | 21,123 | - | 419.3 | |||||||||||||||||||
| Swap interest income | (4,221) | (5,627) | - | - | |||||||||||||||||||
| Capitalized interest | (2,916) | (5,537) | - | - | |||||||||||||||||||
| Amortization of deferred charges | 7,580 | 7,731 | - | - | |||||||||||||||||||
| 182,985 | 167,010 | 2,862.3 | 2,583.0 | ||||||||||||||||||||
As of December 31, 2024, we, including our consolidated subsidiaries, had total debt principal outstanding of $2.9 billion and finance lease obligations of $0.0 billion (December 31, 2023: debt principal outstanding of $2.2 billion and finance lease obligations of $0.4 billion). During the year ended December 31, 2024, we exercised purchase options and took redelivery of the seven vessels with associated finance lease liabilities. (See Note 22: Finance Lease Liability).
Interest expense for 2024 was $183.0 million compared with $167.0 million for 2023. The increase in interest expense in the year ended December 31, 2024, compared with the same period in 2023, is mainly due to new loans obtained by us for the vessels purchased in 2024 and the increased interest rates in the period for floating rate debt and refinanced fixed loans. The daily SOFR rate was an average of 5.15% in the year ended December 31, 2024, compared to 5.01% in 2023. Changes in interest related to the bonds are due to changes in foreign currency exchange rate, new bond issuances, repayments and redemptions.
The interest on lease debt financing in 2024 is also increased compared to 2023. The increase is due to new financing obtained by us for the two car carriers delivered in January and March 2024 and one container vessel in the year ended December 31, 2024. In addition, there is an increase on lease debt financing due to new financing obtained by us for the two car carriers delivered in September and November 2023, one car carrier and one container vessel in the year ended December 31, 2023.
As of December 31, 2024, we, and our consolidated subsidiaries were party to interest rate and currency swap contracts, which effectively fix our interest rates on $0.5 billion (2023: $0.4 billion) of floating rate debt. The increase in swap interest expense is primarily due to fluctuations in average LIBOR, SOFR and NIBOR rates.
The above finance lease interest expense represents the interest portion of our finance lease obligations on seven vessels (2023: seven vessels) under a sale and leaseback transaction with an Asia based financial institution. During the year ended December 31, 2024, we exercised the applicable purchase options and these seven vessels were redelivered to us. The interest expense on our finance lease obligations is decreased in 2024, compared with 2023, due to the above purchase option exercised in 2024.
Loss on purchase of bonds and debt extinguishment
During the year ended December 31, 2024, we recorded a loss of $1.3 million mainly from the buyback of the NOK700 million senior unsecured floating rate bonds due 2024, the NOK600 million senior unsecured floating rate bonds due 2025, the 8.25% senior unsecured sustainability-linked bonds due 2028 and the NOK750 million senior unsecured floating rate bonds due 2029. The NOK700 million senior unsecured floating rate bonds due 2024 and the NOK600 million senior unsecured floating rate bonds due 2025 were fully repaid in 2024. During the year ended December 31, 2023, we recorded a loss of $0.5 million from the buyback of the 4.875% senior unsecured convertible bonds due 2023 and the NOK700 million senior unsecured floating rate bonds due 2023 which were repaid in 2023.
Other non-operating items
|
(in thousands of $)
|
2024 | 2023 | |||||||||
| Dividend received from related parties | 645 | 1,246 | |||||||||
| Loss on investments in debt and equity securities | (854) | (1,912) | |||||||||
| Other financial items, net | 2,515 | (1,192) | |||||||||
| 2,306 | (1,858) | ||||||||||
During the year ended December 31, 2024, we received dividends of $0.6 millionfrom NorAm Drilling (2023: $1.2 million).
The loss on investments in debt and equity securities in the year ended December 31, 2024, relates to a mark to market loss of $0.9 million from the NorAm Drilling shares (2023: $1.9 million).
Other financial items, net have increased by $3.7 million in 2024 compared to 2023. This is mainly due to favorable movement in the fair value of non-designated derivatives, which during the year ended December 31, 2024, included a loss of $4.7 million, comparing to a loss of $8.4 million in 2023. This is slightly offset by a net cash inflow on non-designated derivatives and swap settlements of $5.0 million during the year ended December 31, 2024, comparing to an inflow of $5.3 million in 2023. The remaining increase is mainly due to favorable exchange rate movements. (See Note 10: Other Financial Items, Net).
As reported above, certain assets were accounted for under the equity method in 2024 and 2023. Their non-operating expenses, including net interest expenses, are not included above, but are reflected in "equity in earnings of associated companies" - see below under "Results of Operations".
Equity in earnings of associated companies
River Box holds investments in direct financing leases, through its subsidiaries, related to the 19,200 and 19,400 TEU containerships MSC Anna, MSC Viviana, MSC Ericaand MSC Reef. We hold 49.9% ownership in River Box and is accounted for under the equity method. The remaining 50.1% of the shares of River Box are held by a subsidiary of Hemen, our largest shareholder and a related party. (Refer to Note 18: Investment in Associated Companies). The net income of the River Box group is reflected in "Equity in earnings of associated companies". The total equity in earnings of associated companies in the year ended December 31, 2024 was $2.8 million (December 31, 2023: $2.8 million).
Tax expense
In the year ended December 31, 2024, we recorded a tax expense of $10.6 million in relation to the operations of our drilling rigs, Herculesand Linus, compared to $3.3 million in the year ended December 31, 2023. The higher tax was primarily driven bythe increased operations of the drilling rigHerculesin Namibia and Canada during 2024.
For the discussion of our operating results in 2023 compared with 2022, we refer to "Item 5. Operating and Financial Review and Prospects" included in our annual report on Form 20-F for the year ended December 31, 2023, which was filed with the Commission on March 14, 2024.
B. LIQUIDITY AND CAPITAL RESOURCES
We operate in a capital intensive industry. Our asset acquisitions are financed through a combination of our own equity, term loans, lease financing and revolving credit facilities from commercial banks. Providers of such borrowings generally require that the loans be secured by mortgages against the assets being acquired, and as of December 31, 2024, substantially all of our vessels and drilling rigs are pledged as security or are held as finance leases. However, in common with many other companies, we also have unsecured borrowings as shown below. Providers of unsecured financing do so on the basis of our assets and liabilities, cash flows, operating results and other factors, all of which affect the terms on which such unsecured financing is available. In general, unsecured financing is more expensive than borrowings secured against collateral.
Our liquidity requirements relate to servicing our debt, funding the equity portion of investments in vessels, funding working capital requirements and maintaining cash reserves against fluctuations in operating cash flows. Revenues from our time charters, bareboat charters and drilling contracts are received approximately 15 days in advance, monthly in advance, or monthly in arrears.
Our funding and treasury activities are conducted within corporate policies designed to maximize investment returns while maintaining appropriate liquidity for both our short and long-term needs. This includes arranging borrowing facilities on a cost-effective basis. We primarily hold cash and cash equivalents in U.S. dollars, with minimal amounts held in Norwegian kroner, Pound Sterling, Euro and Singaporean dollars.
Surplus funds may be deployed to acquire equity or debt interests in other companies or to repurchase portions of our outstanding bonds, with the aim of generating competitive returns. These investments may also be supported by dedicated credit facilities arranged specifically for this purpose.
Our short-term liquidity requirements relate to servicing our debt and funding working capital requirements, including required payments under our management agreements and administrative services agreements. Sources of short-term liquidity include cash balances, short-term investments, available amounts under revolving credit facilities and receipts from our charters.
Our long-term liquidity requirements include funding the equity portion of investments in new vessels, and repayment of long-term debt balances, including those relating to loan and lease debt financing agreements of us and our consolidated subsidiaries as of December 31, 2024 are detailed in Note 21 Short-Term and Long-Term Debt, and summarized below in borrowings.
Other significant transactions subsequent to December 31, 2024 impacting our cash flows include the following:
•In January 2025, we issued a $150 million senior unsecured, sustainability-linked bond, in the Nordic credit market. The bonds were issued at 99.5% of face value, bear a coupon of 7.75% and will mature in 2030. The net proceeds are intended for new investments and general corporate purposes.
•In February 2025, the Company announced that Golden Ocean had exercised its purchase options for eight Capesize vessels for $112.0 million in aggregate. The vessels will be redelivered to Golden Ocean during the third quarter of 2025, and net cash proceed after repayment of debt is estimated to be approximately $50.0 million.
The main security provided under the secured credit facilities include (i) guarantees from subsidiaries, as well as instances where we guarantee all or part of the loans, (ii) a first priority pledge over all shares of the relevant asset owning subsidiaries and (iii) a first priority mortgage over the relevant collateral assets which includes substantially all of the vessels and the drilling rigs that are currently owned by us as of December 31, 2024, excluding one 1,700 TEU container vessel and five Supramax dry bulk carriers.
Refer to "Contractual Commitments" section further below for details of material contractual commitments as of December 31, 2024.
As of December 31, 2024, there were no subsidiaries (2023: seven) with lease liabilities related to chartered-in container vessels, resulting in a nil balance (2023: $419.3 million). During the year ended December 31, 2024, we exercised purchase options, took redelivery of the seven vessels, and refinanced the associated finance lease liabilities through term loan facility agreements.
As of December 31, 2024, we had cash and cash equivalents of $134.6 million (2023: $165.5 million). In the year ended December 31, 2024, we generated cash of $369.9 million net from operating activities, used $617.5 million net in investing activities and received $216.7 million net in financing activities.
Cash flows provided by operating activities for 2024 increased from $343.1 million in 2023 to $369.9 million, mainly due to changes in total operating income received and the timing of charter hire and trade and other receivables.
Investing activities used cash of $617.5 million in 2024, compared to cash used of $103.9 million in 2023. The increase in cash used for investing activities in 2024 is mainly due to the increase in cash outflow from the acquisition of vessels, capital improvements, newbuilding installments and deposits. In 2024, there was an outflow of $644.9 million arising from the purchase of three LR2 product tankers and two chemical tankers, newbuilding installments for two car carriers which were delivered in 2024 and five container vessels under construction, capital upgrades for Herculesand costs incurred for the SPS and capital upgrades forLinus. In 2023, there was an outflow of $264.4 million arising from the SPS, and other capital upgrades performed on the drilling rig, Hercules,and the acquisition of two dual-fuel 7,000 CEU newbuilding car carriers. In addition, in 2024, there was an inflow of $22.7 million arising from the sale of threecontainer vessels, compared to an inflow of $156.2 million in 2023 arising from the sale of two Suezmax tankers, two chemical tankers and one very large crude carrier.
Financing activities provided cash of $216.7 million in 2024, compared to using net cash of $262.1 million in 2023. The net inflow in 2024, compared to the outflow in 2023, was primarily driven by $1,398.4 millionfrom debt proceeds in 2024, compared to $944.6 millionin 2023. These include the 8.25% senior unsecured sustainability-linked bonds due 2028 and the NOK750 million senior unsecured floating rate bonds due 2029 which we issued in April 2024 and September 2024 respectively. In addition, there were lower debt repayments of $556.7 million in 2024, compared to $781.1 million in 2023. In 2024, a cash inflow of $96.3 million was generated from the issuance of 8,000,000 common shares at a public offering, whereas in 2023 there was a $10.2 million cash outflow from share repurchases. Outflows relating to bond repurchases and redemptions totaled $133.1 million in 2024 and $205.8 million in 2023. These include the NOK700 million senior unsecured floating rate bonds due 2024 and the NOK600 million senior unsecured floating rate bonds due 2025 which were repaid in 2024.
Furthermore there was an increase in payments made for finance lease liabilities. In 2024, payments of $419.3 millionwere made compared to $53.7 millionin 2023. The increase in payments was due to our exercise of purchase options on seven container vessels, which were subsequently refinanced.
During 2024, we paid four dividends totaling $1.07per common share (2023: four dividends totaling $0.97 per common share), or a total of $138.5 million (2023: $123.0 million). All dividends paid in 2024 and 2023 were cash payments. Please see "Item 8. Financial Information-A. Consolidated Statement and Other Financial Information-Dividend Policy". Since 2020, we have implemented a dividend reinvestment plan "DRIP", to facilitate investments by individual and institutional shareholders who wish to invest the dividend payments received in respect of our common shares owned or other cash amounts, in our common shares on a regular basis, one time basis or otherwise. See "Item 10. Additional Information - B. Memorandum and Articles of Association" and "Note 23: Share Capital, Additional Paid-In Capital and Contributed Surplus" for further information on the DRIP program.
Borrowings
As of December 31, 2024, we had total short-term and long-term debt outstanding of $2.9 billion (December 31, 2023: $2.2 billion).
The following table presents an overall summary of our borrowings as of December 31, 2024:
| December 31, 2024 | |||||
| (in millions of $) | Outstanding balance on loan | ||||
| Unsecured borrowings: | |||||
| 7.25% senior unsecured sustainability-linked bonds due 2026 | 150.0 | ||||
| 8.875% senior unsecured sustainability-linked bonds due 2027 | 150.0 | ||||
| 8.25% senior unsecured sustainability-linked bonds due 2028 | 145.2 | ||||
| NOK750 million senior unsecured floating rate bonds due 2029 | 63.6 | ||||
| Total bonds | 508.8 | ||||
| U.S. dollar denominated floating rate debt due through 2030 | 1,503.9 | ||||
| U.S. dollar denominated fixed rate debt due 2026 | 147.4 | ||||
| Lease debt financing due through 2033 | 702.2 | ||||
| Total borrowings and lease liabilities (1) | 2,862.3 | ||||
(1) In addition to the Company and its consolidated subsidiaries, we also have a share of liabilities amounting to $183.5 million in associated companies which represents 49.9% of the finance lease liabilities within River Box.
See Note 21: Short-Term and Long-Term Debt in our audited Consolidated Financial Statements included herein for further details on our borrowing activities.
Loan Covenants
Certain of our financing agreements discussed above, have, among other things, the following financial covenants, as amended or waived, which are tested quarterly, the most stringent of which require us (on a consolidated basis) to maintain:
•a book equity ratio of minimum 0.20 to 1.0;
•a positive working capital; and
•minimum liquidity of at least $25.0 million, including undrawn credit lines with a remaining term of at least six months.
Our financing agreements discussed above have, among other things, restrictive covenants which, to the extent triggered, would restrict our ability to:
i.declare, make or pay any dividend, charge, fee or other distribution (whether in cash or in kind) on or in respect of its share capital (or any class of its share capital);
ii.pay any interest or repay any principal amount (or capitalized interest) on any debt to any of its shareholders;
iii.redeem, repurchase or repay any of its share capital or resolve to do so; or
iv.enter into any transaction or arrangement having a similar effect as described in (i) through (iii) above.
Our secured credit facilities may be secured by, among other things:
•a first priority mortgage over the relevant collateralized vessels;
•a first priority assignment of earnings, insurances and charters from the mortgaged vessels for the specific facility;
•a pledge of earnings generated by the mortgaged vessels for the specific facility; and
•a pledge of the equity interests of each vessel owning subsidiary under the specific facility.
A violation of any of the financial covenants contained in our financing agreements described above may constitute an event of default under the relevant financing agreement, which, unless cured within the grace period set forth under the financing agreement, if applicable, or waived or modified by our lenders, provides our lenders, by notice to the borrowers, with the right to, among other things, cancel the commitments immediately, declare that all or part of the loan, together with accrued interest, and all other amounts accrued or outstanding under the agreement, be immediately due and payable, enforce any or all security under the security documents, and/or exercise any or all of the rights, remedies, powers or discretions granted to the facility agent or finance parties under the finance documents or by any applicable law or regulation or otherwise as a consequence of such event of default.
Furthermore, certain of our financing agreements contain a cross-default provision that may be triggered by a default under one of our other financing agreements. A cross-default provision means that a default on one loan would result in a default on certain of our other loans. Because of the presence of cross-default provisions in certain of our financing agreements, the refusal of any one lender under our financing agreements to grant or extend a waiver could result in certain of our indebtedness being accelerated, even if our other lenders under our financing agreements have waived covenant defaults under the respective agreements. If our secured indebtedness is accelerated in full or in part, it would be very difficult in the current financing environment for us to refinance our debt or obtain additional financing and we could lose our vessels and other assets securing our financing agreements if our lenders foreclose their liens, which would adversely affect our ability to conduct our business.
Moreover, in connection with any waivers of or amendments to our financing agreements that we have obtained, or may obtain in the future, our lenders may impose additional operating and financial restrictions on us or modify the terms of our existing financing agreements. These restrictions may further restrict our ability to, among other things, pay dividends, make capital expenditures or incur additional indebtedness, including through the issuance of guarantees. In addition, our lenders may require the payment of additional fees, require prepayment of a portion of our indebtedness to them, accelerate the amortization schedule for our indebtedness and increase the interest rates they charge us on our outstanding indebtedness.
Minimum Value Covenants
Most of our loan facilities are secured with mortgages on vessels. As of December 31, 2024, we had borrowings totaling $0.9 billion with minimum value covenants which are tested on a regular basis. These borrowings were secured against 26vessels and onerig which had combined charter-free market values totaling approximately $2.0 billion. A reduction of 10% in charter-free market values in 2024would not result in any material prepayments or reduction in availability on revolving credit facilities, after scheduled loan repayments and prepayments in the year.
In addition, as of December 31, 2024, we had $0.4 billion in borrowings subject to forward-starting or conditional minimum value covenants, which are tested only if the charter which the vessel is employed is terminated or nearing expiration. These borrowings were secured against 17vessels which had combined charter-free market values totaling approximately $0.7 billion.
As of December 31, 2024, we were in compliance with all of the financial covenants contained in our financing agreements.
Debt and Lease Liabilities in Associated Companies
River Box holds investments in direct financing leases, through its subsidiaries, related to the 19,200 and 19,400 TEU containerships MSC Anna, MSC Viviana, MSC Ericaand MSC Reef. We have an investment of 49.9% in River Box and the remaining 50.1% of the shares of River Box are held by a subsidiary of Hemen, our largest shareholder and a related party.
As of December 31, 2024, our share of the direct financing leases and finance lease liabilities within River Box were $220.9 million and $183.5 million respectively.
There were no outstanding bank loans in associated companies as of December 31, 2024 and December 31, 2023.
Derivatives
Due to the discontinuance of LIBOR after June 30, 2023, and notwithstanding the automatic conversion mechanisms to alternative rates, we have entered into amendment agreements to existing swap agreements for the transition from LIBOR to SOFR. We have elected to apply the optional expedient pursuant to ASC 848 for contracts which are designated as cash flow hedges within the scope of ASC 815. This meant that we were not required to de-designate hedging relationships as a result of changes to loan and swap agreements which related solely to the replacement of LIBOR as a benchmark rate to SOFR.
We use financial instruments to reduce the risk associated with fluctuations in interest rates. As of December 31, 2024, we and our consolidated subsidiaries had entered into interest rate swap contracts with a combined notional principal amount of $0.5 billion whereby variable NIBOR or SOFR interest rates plus applicable credit adjustment spreads are swapped for fixed interest rates. The fixed interest rates, including the impact of credit adjustment spreads are between 0.19% per annum and 6.47% per annum. We also entered into currency swap contracts, related to our NOK750 million bond (due 2029) denominated in Norwegian kroner, with notional principal amounts of NOK750 million ($69.4 million) whereby variable NIBOR interest rates including additional margins are swapped for fixed interest rate. The eventual settlement of the bonds will have an effective exchange rate of NOK10.80 = $1. Furthermore, the currency swap with a notional principal amount of NOK600 million ($67.5 million), previously executed in connection with the NOK600 million bond (due 2025), was settled in January 2025 at an effective exchange rate of NOK8.88 = $1. The overall effect of our swaps is to fix the interest rate on approximately $0.5 billion of our floating rate debt. As of December 31, 2024, the weighted average interest rate for our floating rate debt denominated in U.S. dollars and Norwegian kroner which takes into consideration the effect of our interest rate and cross currency swaps is 5.96% per annum including margin.
The effect of the above swap contracts is to substantially reduce our exposure to interest rate and exchange rate fluctuations, further analysis of which is presented in "Item 11 - Quantitative and Qualitative Disclosures about Market Risk".
At the date of this report, we were not party to any other interest rate or currency derivative contracts.
Equity
Please see "Item 10. Additional Information - A. Share Capital" and "Note 23: Share Capital, Additional Paid-In Capital and Contributed Surplus" to our audited Consolidated Financial Statements included herein for further details on our equity activities.
Contractual Commitments
As of December 31, 2024, we had the following contractual obligations and commitments:
| Payment due by period | |||||||||||||||||||||||||||||
| Less than 1 year | 1-3 years | 3-5 years | After 5 years | Total | |||||||||||||||||||||||||
| (in millions of $) | |||||||||||||||||||||||||||||
| 7.25% senior unsecured sustainability-linked bonds due 2026 | - | 150.0 | - | - | 150.0 | ||||||||||||||||||||||||
| U.S. dollar denominated fixed rate debt due 2026 | 1.5 | 145.9 | - | - | 147.4 | ||||||||||||||||||||||||
| 8.875% senior unsecured sustainability-linked bonds due 2027 | - | 150.0 | - | - | 150.0 | ||||||||||||||||||||||||
| 8.25% senior unsecured sustainability-linked bonds due 2028 | - | - | 145.2 | - | 145.2 | ||||||||||||||||||||||||
| NOK750 million senior unsecured floating rate bonds due 2029 | - | - | 63.6 | - | 63.6 | ||||||||||||||||||||||||
| Floating rate long-term debt | 587.5 | 335.7 | 472.1 | 108.6 | 1,503.9 | ||||||||||||||||||||||||
| Lease debt financing (2) | 100.0 | 189.8 | 234.9 | 177.5 | 702.2 | ||||||||||||||||||||||||
| Total debt repayments | 689.0 | 971.4 | 915.8 | 286.1 | 2,862.3 | ||||||||||||||||||||||||
| Total interest payments (1) | 90.5 | 112.4 | 42.5 | 2.9 | 248.3 | ||||||||||||||||||||||||
| Interest on lease debt financing (2) | 15.2 | 21.4 | 35.7 | 42.5 | 114.8 | ||||||||||||||||||||||||
| Finance lease obligations in associated companies (3) | 14.5 | 15.3 | 33.2 | 120.5 | 183.5 | ||||||||||||||||||||||||
| Interest on finance lease liabilities in associated companies (3) | 11.6 | 10.8 | 18.5 | 21.5 | 62.4 | ||||||||||||||||||||||||
| Capital upgrades commitments (4) | 33.4 | - | - | - | 33.4 | ||||||||||||||||||||||||
| Commitments under shipbuilding contracts (5) | - | 173.3 | 644.8 | - | 818.1 | ||||||||||||||||||||||||
| Total contractual cash obligations | 854.2 | 1,304.6 | 1,690.5 | 473.5 | 4,322.8 | ||||||||||||||||||||||||
(1)Interest payments are based on the existing borrowings of the consolidated subsidiaries. It is assumed that no further refinancing of existing loans takes place and that there is no repayment on revolving credit facilities. Interest rate swaps have not been included in the calculation. The interest has been calculated using the five-year U.S. dollar swap of 3.79%, the five-year NOK swap of 4.50% and the exchange rate of NOK10.63 = $1.00 as of March 12, 2025, plus agreed margins. Interest on fixed rate loans is calculated using the contracted interest rates.
(2)Interest on lease debt financing relate to interest paid on the sale and leaseback transactions through a Japanese operating lease with call option financing structures for the financing of six container vessels and seven car carriers. The transactions did not qualify as a sale and have been recorded as financing arrangements.
(3)This represents 49.9% of the finance lease liabilities and interest on finance lease liabilities within River Box in relation to four container vessels on charter to MSC.
(4)As of December 31, 2024, we had committed $33.4 million towards the installation of capital upgrades on four 8,700 TEU container vessels, three 10,600 TEU container vessels and one drilling rig. The installations are expected to take place in 2025.
(5)Also as of December 31, 2024, we had commitments under shipbuilding contracts to construct five newbuilding dual-fuel 16,800 TEU container vessels, totaling to $818.1 million. The vessels are expected to be delivered in 2028.
There were no other material contractual commitments as of December 31, 2024.
Our contractual obligations and commitments shown above relate to servicing our debt, funding the equity portion of investments in vessels and funding our working capital requirements. Our funding and treasury activities are conducted within corporate policies to maximize investment returns while maintaining appropriate liquidity for both our short and long-term needs.
Our short-term contractual obligations and commitments relate to servicing our debt and funding working capital requirements. Sources of short-term liquidity include cash balances, short-term investments, available amounts under revolving credit facilities and receipts from our charters. We believe that our cash flow from the charters will be sufficient to fund our anticipated debt service and working capital requirements for the short and medium term.
Our long-term liquidity requirements include funding the equity portion of investments in new vessels and repayment of long-term debt balances. We expect that we will require additional borrowings or issuances of equity in the long term to meet our capital requirements.
C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
We do not undertake any significant expenditure on research and development, and have no significant interests in patents or licenses.
D. TREND INFORMATION
Vessel prices have fluctuated significantly over the past decade. In 2024, a significant number of newbuilding orders were placed, with 2,412 ships of 167.7 million dwt and 65.8 million compensated gross tonnage ("CGT") ordered. This represents the largest in terms of CGT since 2007. The ordering, according to industry sources, follows fleet renewal requirements to ensure compliance with new regulations in addition to competition to secure yard slots as lead time for vessel deliveries are increasing. The increased number of newbuilding orders follows an active 2023, with elevated newbuild prices, fewer available yard berths and continued uncertainty around fueling technology continuing to impact contracting activity.
The Oil Tanker Market
According to industry sources, the tanker market was firm in 2024 however with some easing during the year. Several disruptive factors may result in volatility and earnings going forward. With limited fleet growth, the potential for firmer OPEC+ volumes and other geopolitical factors such as imposed sanctions, it is expected that the market may see some support, however with some uncertainty on demand trends particularly related to Chinese demand. In 2024, crude tanker demand is forecasted to have increased by approximately 0.9% whilst the crude fleet grew by approximately 0.2%. Product tanker demand increased by approximately 5.5% while the product tanker fleet grew by 1.3%. At the end of December 2024, the total tanker orderbook stood at 13.8% of the existing fleet.
Also according to industry sources, the fleet of trading crude tankers is expected to grow by 1.0% during 2025, while crude tanker demand is expected to grow by 1.6% in the same period. Product tanker demand is expected to grow by 0.5% with the product tanker fleet expected to increase by 5.8% during 2025. A series of potential impacts and factors may impact the demand and supply growth.
According to industry sources, average spot earnings for a 2010-built VLCC was $33,500 per day during 2024, down from $43,200 per day in 2023. Average spot earnings for a 2010-built Suezmax was $44,900 per day during 2024 down from $53,500 in 2023. Average spot earnings for a 2010-built Aframax was $43,100 per day during 2024, down from $55,400 per day in 2023.
The Dry Bulk Shipping Market
During 2024, the dry bulk fleet is estimated to have increased by 3.0% in total dwt. This compares to a demand increase of 5.0% in terms of tonne miles. Looking ahead, industry sources are estimating that dry bulk global trade will expand by 0.9% during 2025, in terms of tonne-miles. Industry sources indicate that the 5.0% increase in seaborne dry bulk trade (in tonne miles) during 2024 came as a result of firm Chinese dry bulk demand. The dry bulk newbuilding orderbook stands at 10.6% of the total fleet in terms of capacity. According to industry sources, the market is expected to soften during 2025 compared to 2024, while demand growth is expected to be 0.9% alongside fleet growth of 3.0%.
According to industry sources, Capesize earnings during 2024 averaged approximately $25,100 per day, up 51% from 2023. Kamsarmax earnings during 2024 averaged approximately $14,800 per day, up 2% from 2023. Supramax earnings during 2024 averaged approximately $14,600 per day, up 18% from 2023.
Our dry bulk vessels on charter to Golden Ocean are subject to long term charters that provide for both a fixed base charter hire and profit sharing payments that apply once Golden Ocean earns average daily rates from our vessels in the market that exceed the fixed base charter rates, calculated and payable on a quarterly basis. If rates for vessels chartered in the spot market increase, our profit sharing revenues, if any, will likewise increase for those vessels operated by Golden Ocean in the spot market. We also have five 57,000 dwt and two 82,000 dwt dry bulk vessels currently employed in the spot market, which will benefit directly from any strengthening in spot charter rates.
The Freight Liner Market (Containerships and Car Carriers)
The container charter market experienced, according to industry sources, a strong upswing during 2024 as vessel availability remains tight following major impacts from rerouting of ships away from usual Red Sea voyages. Whilst rates have softened during the second half of 2024, the charter rates stand at the highest levels seen outside of the COVID-19 period. Developments in the market, according to industry sources, will greatly depend on the potential resumption of Suez Canal transits along with containership fleet growth which is expected to increase by 6% during 2025, along with demand risks related due to geopolitical uncertainties.
According to industry sources, in 2024 global container trade (TEU-miles) is estimated to have increased by 18% and containership fleet capacity expanded by more than 10%. During 2024, several new orders were placed with the orderbook as of January 2025 standing at 779 vessels representing 8.3 million TEU, which represents 27% of TEU capacity vs existing fleet.
The car carrier market, according to industry sources, has remained firm with strong profits and elevated freight rates, however with shifting fundamentals as market is easing following limited demand growth and an increase in capacity growth. The car carrier fleet is estimated to have reached a capacity growth of 8% during 2024. The global deep-sea car trade is estimated to have grown by 3% to a record 24.5 million cars in 2024, which is approximately 15% above pre COVID-19 levels.
Seaborne car trade on an annualized basis has been increased by approximately 3% in 2024, excluding the seaborne car trade within Europe. The increase in seaborne car trade volumes follows an increase of 17% in 2023. During the fourth quarter of 2024, the total fleet stood at 807 vessels which totaled 4.35 million CEU of capacity, up 7% from the start of 2024.
The Offshore Drilling Market
The offshore drilling market has experienced substantial volatility over the past decade, largely influenced by fluctuating oil prices and oil companies' exploration and development plans. The Brent crude spot price has varied between $20 per barrel in 2020 and over $100 per barrel in 2022. These price swings have significantly impacted the viability and dynamics of offshore exploration and drilling activities.
From 2014 onward, a prolonged period of low oil prices rendered many offshore exploration projects economically unviable. This challenging market environment caused financial distress for numerous drilling rig owners and operators, with some undergoing financial restructurings. Consequently, the offshore drilling market faced reduced activity and low rig utilization for many years.
In recent years, however, the market has shown signs of recovery. Increased global demand for oil and gas, coupled with diminishing supply due to natural depletion of existing fields and prolonged underinvestment in new production, has driven oil prices higher. This has encouraged oil and gas companies to boost capital expenditures in deepwater oil prospects, spurring a resurgence in exploration and development activities and enhancing demand for offshore drilling rigs. Additionally, the market's outlook has improved due to a shrinking supply of offshore drilling rigs.
Several older rigs have been retired and demolished, tightening supply and supporting higher utilization rates for the remaining offshore drilling fleet. Since 2020, contract dayrates and utilization rates of offshore drilling rigs has risen significantly. Since 2020, the utilization of offshore drilling rigs has risen significantly, climbing from 83% in 2020 to 93% in 2023. However, in the short term, the market is experiencing reduced demand for drilling rigs in 2025 which has resulted in more available rigs competing for the same work lowering day rates and utilization somewhat since 2023.
Summary
The above overviews of the various sectors in which we operate are based on current market conditions. However, market developments cannot always be predicted and may differ from our current expectations. The overviews provided are based on information, data and estimates derived from industry sources available as of the date of this annual report, and there can be no assurances that such trends will continue or that any anticipated developments referenced in such section will materialize. This information, data and estimates involve a number of assumptions and limitations, are subject to risks and uncertainties, and are subject to change based on various factors. Please be cautioned not to give undue weight to such information, data and estimates. We have not independently verified any third-party information, verified that more recent information is not available and undertake no obligation to update this information unless legally obligated.
E. CRITICAL ACCOUNTING ESTIMATES
The preparation of our consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenues and expenses during the reporting period. The following is a discussion of the accounting estimates we apply that are considered to involve a higher degree of estimation uncertainty. For details of all our material accounting policies, see "Note 2: Accounting Policies" to our consolidated financial statements.
Vessels, rigs and equipment
Vessels, rigs and equipment are recorded at historical cost less accumulated depreciation and, if appropriate, impairment charges. The cost of these assets less estimated residual value is depreciated on a straight-line basis over the estimated remaining economic useful life of the asset. The estimated economic useful life of our drilling rigs is 30 years and for all other vessels it is 25 years.
Impairment of Vessels, rigs and equipment
Vessels and rigs held and used by us are reviewed for impairment on a quarterly basis and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Indicators of impairment are identified based on a combination of factors which include amongst others, where the carrying value of the vessel or rig is above the average fair values based on two external appraisals. Other factors we consider important which could affect recoverability and trigger impairment include significant underperformance relative to expected operating results, new regulations that could change the estimated useful economic lives of our vessels and rigs, and significant negative industry or economic trends. For the year ended December 31, 2024, nine vessels and one drilling rig shown in the table below in "Vessel and Rig Market Values", had carrying values above average fair values based on two external appraisals.
Where impairment indicators exist, we assess recoverability of the carrying value of each vessel or rig on an individual basis by estimating the future undiscounted cash flows expected to result from the asset and eventual disposal. In addition, vessels held for sale are reported at the lower of carrying amount and fair value less estimated costs to sell.
In assessing the recoverability of carrying amounts, we must make assumptions regarding estimated future cash flows. These include assumptions about market rates, operating costs, utilization, residual values and the estimated economic useful life of these assets. In making market rate assumptions we refer to five-year and 10-year historical trends and performance, as well as any known future factors.
An impairment charge would be recognized if the estimate of future undiscounted cash flows expected to result from the use of the vessel or rig and its eventual disposal is less than its carrying amount. Any impairment loss is recorded equal to the difference between the asset's carrying value and estimated fair value.
No impairment was recognized in 2024. In 2023, reviews of the carrying value of long-lived assets indicated that two chemical tankers were impaired, and charges were taken against these assets. No impairment was recognized in 2022.
Vessel and Rig Market Values
As the information used in the estimation of fair values in appraisals are obtained from various industry and other sources, our estimates of vessel and rig market values are inherently uncertain. In addition, charter-free market values are highly volatile and any estimate of market value may not be indicative of the current or future basic market value of our vessels or prices that we could achieve if we were to sell them. Moreover, we are not holding our vessels for sale, except as otherwise noted in this report. Most of our vessels and one of our rigs are currently employed under long-term charters, leases and similar arrangements. As such there is no readily available liquid market for vessels and rigs subject to these agreements and we are limited to obtaining market values free of contracts.
As of December 31, 2024, we owned 69 vessels and two rigs. The aggregate carrying value of these 71 assets as of December 31, 2024, was $3.6 billion, as summarized in the table below. The table is presented in the context of the markets in which the vessels operate, with crude oil tankers, oil product tankers and chemical tankers grouped together under "Tanker vessels", container vessels and car carriers grouped together under "Liners" and a jack-up drilling rig and an ultra-deepwater drilling rig grouped together under "Drilling Rigs".
| Aggregate carrying value at | |||||||||||
| Number of | December 31, 2024 | ||||||||||
| owned vessels | ($ millions) | ||||||||||
| Tanker vessels (1) | 18 | 893 | |||||||||
| Dry bulk carriers (2) | 15 | 247 | |||||||||
| Liners (3) | 36 | 1,805 | |||||||||
| Drilling Rigs (4) | 2 | 642 | |||||||||
| 71 | 3,587 | ||||||||||
(1)Includes 18 vessels with a carrying value of $893.3 million which is approximately $326.9 million less than their charter-free market value*.
(2)Includes seven vessels with an aggregate carrying value of $123.8 million, which exceeds their aggregate charter-free market value by approximately $24.0 million and eight vessels with a carrying value of $123.6 million which is approximately $89.4 million less than their charter-free market value*.
(3)Includes two vessels with an aggregate carrying value of $79.7 million which exceeds their aggregate charter-free market value by approximately $3.2 million and 34 vessels with an aggregate carrying value of $1,725.2 million, which is approximately $915.7 million less than their charter-free market value*.
(4)Includes one jack-up drilling rig with a carrying value of $337.3 million which is approximately $74.8 million more than its charter-free market value* and one ultra-deepwater drilling rig with a carrying value of $304.6 million, which is approximately $20.4 million less than its charter-free market value*.
*The charter-free market value figures provided are based on the average of two independent broker appraisals and represents their estimate of the fair market value of the vessel or rig.
The above aggregate carrying value of $3.6 billion as of December 31, 2024 is made up of (a) $35.1 million investments in direct finance leases (excluding the chartered-in container vessels, MSC Anna, MSC Viviana, MSC Erica andMSC Reef, in our associated companies), and (b) $3,552.3 million vessels, rigs and equipment.