SFL Orders LNG Dual-Fuel PCTCs on Spec as Tanker Windfall Funds Growth

Maritime infrastructure firm bets on car carrier supply-demand gap while Suezmax spot rates hit $133k/day

SFL · Earnings Call · 2026-08-26

SFL Corporation reported a solid Q2 2026 with revenues of $201 million and EBITDA-equivalent cash flow of $130 million, up 20% sequentially, driven by two Suezmax tankers riding a record spot market. But the more strategic news is the company's pivot into car carriers: it ordered four LNG dual-fuel 7,000 CEU newbuilds, two already chartered and two to be placed on the open market. This is a departure from its usual practice of contracting before ordering and signals confidence in the structural outlook for the car carrier segment.

A Calculated Bet on Car Carriers

The four PCTC newbuilds, with an aggregate yard cost of approximately $360 million, are scheduled for delivery into 2029. Two have 5+5-year charters to a major Asian car manufacturer, adding $150 million in firm backlog (up to $300 million if the option is declared). The other two are uncommitted. CEO Ole Hjertaker acknowledged the shift: “we have been reluctant to order vessels without charters attached, but we believe the dynamics in the car carrier market remain attractive, with most shipyards sold out well into 2030.” — Ole Hjertaker, Chief Executive Officer · 2026-08-26 The rationale is a structural supply-demand gap. COO Trym Sjølie elaborated:

When we look at the balance or the demand for ships going forward, we see there's sort of a gap between supply and demand growing from 2029, 2030, and onwards, even with the strong ordering activity there has been lately.
Trym Sjølie, Chief Operating Officer · 2026-08-26

The growth is driven by China's auto exports and the need to replace an aging fleet. The choice of LNG dual-fuel propulsion is customer-driven: “the customers, i.e., the car manufacturers and their car buyers ultimately, demand or expect green transportation. We happen to believe that LNG is the best fuel at the moment based on availability and technical usability.” — Trym Sjølie, Chief Operating Officer · 2026-08-26 This is a clear signal that dual fuel is becoming a competitive advantage for Car Carriers, and SFL is positioning itself as a long-term provider of greener tonnage. The company already operates a number of LNG-ready vessels, and these new new buildings will expand its fleet to 61 maritime assets.

Tanker Windfall and Capital Discipline

While the car-carrier order is the headline, the near-term financial story is the exceptional performance of the two Suezmax tankers that entered the spot market earlier this year. Average daily TCE reached $133,000 in Q2, up from $54,000 in Q1, and the company has already covered 63% of Q3 days at ~$93,000. As Ole noted, “we are enjoying phenomenal cash flow from these vessels right now, we will look for new long-term charter opportunities for these vessels in due course.” — Ole Hjertaker, Chief Executive Officer · 2026-08-26 This echoes the prior quarter's sentiment: “We did expect that market to firm, but we did not anticipate you know, the extent of how it has firmed.” — Ole Bjarte Hjertaker, Chief Executive Officer · 2026-05-12 The company is using this windfall to fund growth and bolster its balance sheet. It raised $100 million through ATM and DRIP programs at a premium to VWAP, minimizing dilution. Combined with strong cash flow, this gives SFL firepower to order newbuilds without over-levering. The company also has seven tankers with extension options that are well in the money, plus a profit-share structure that could yield a windfall if charterers choose to sell assets. This is a deliberate strategy to capture upside while maintaining a long-term charter model.

Rig and Balance Sheet Stability

The Hercules rig is preparing for its Canadian contract, with upgrades underway and mobilization scheduled for February; it will begin producing revenue in H1 2027. The Linus rig continues on its long-term charter with ConocoPhillips through 2029. The company reiterated its 90th consecutive dividend at $0.22, representing a ~7% yield, and its charter backlog stands at $3.8 billion, two-thirds with investment-grade counterparties. The book equity ratio is around 29%, with ample liquidity of $270 million. This stability supports the commitment to ~$360 million in newbuilds. The strategic shift is notable: SFL is betting that the car carrier market will remain structurally tight, and it is using the tanker spot market bonanza to finance that bet. The car manufacturer charters underpin the confidence, and the optional period on the first two vessels provides upside. This is a textbook example of a maritime infrastructure company using its diversified portfolio to pivot toward a segment with stronger long-term visibility.