Throughout this report, the "Company", "SFL ", "we", "us" and "our" all refer to SFL Corporation Ltd. and its subsidiaries. We use the term deadweight ton, or dwt, in describing the size of the vessels. Dwt, expressed in metric tons, each of which is equivalent to 1,000 kilograms, refers to the maximum weight of cargo and supplies that a vessel can carry. We use the term twenty-foot equivalent units, or TEU, in describing container vessels to refer to the number of standard twenty-foot containers that the vessel can carry, and we use the term car equivalent units, or CEU , in describing car carriers to refer to the number of standard cars that the vessel can carry. Unless otherwise indicated, all references to "USD," "US$" and "$" in this report are to, and amounts are presented in, U.S. dollars.
A. [RESERVED]
B. CAPITALIZATION AND INDEBTEDNESS
Not Applicable.
C. REASONS FOR THE OFFER AND USE OF PROCEEDS
Not Applicable.
D. RISK FACTORS
Our assets are primarily engaged in transporting crude oil and oil products, dry bulk and containerized cargoes, freight of rolling cargo, and in offshore drilling and related activities. The risk factors summarized in the Cautionary Statement Regarding Forward Looking Statements and Summary of Risk Factors and detailed below, summarize certain risks that may materially affect our business, financial condition or results of operations. Unless otherwise indicated in this annual report on Form 20-F, all information concerning our business and our assets is as of March 16, 2026.
Risk Factors Summary
The principal risks that could adversely affect, or have adversely affected, our Company’s business, operation results and financial conditions are categorized and detailed below.
–Risk Relating to Our Industry
Our assets operate within a variety of markets that are volatile and unpredictable. Several risk factors including but not limited to our global and local market presence will impact our widespread operations. We are exposed to regulatory, statutory, operational, technical, counterpart, environmental and political risks, and other developments and regulations applicable to us and our industry that may impact and or disrupt our business. Details of specific risks relating to our industry are described below.
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–Risks Relating to our Company
Our Company is subject to a significant number of external and internal risks. We are an entity incorporated in Bermuda with operations in different jurisdictions, markets and industries and, with numerous employees, shareholders, customers and other stakeholders having varying interests, and this broad exposure subjects us to significant risks. We also engage in activities, operations and actions that could result in harm to our Company, and adversely affect our financial performance, position and our business. Details of specific risks relating to our Company are described below.
–Risk Relating to our Common Shares
Our common shares are subject to a significant number of external and internal risks. The market price of our common shares has historically been unpredictable and volatile. As a holding company, we depend on the ability of our subsidiaries to distribute funds to satisfy our financial and other obligations. As we are a foreign corporation, our shareholders may not have the same rights as a shareholder in a U.S. corporation may have. In addition, our shareholders may not be able to bring suit against us or enforce a judgement obtained in the United States against us since our offices and the majority of our assets are located outside of the United States. Furthermore, sales of our common shares could cause the market price of our common shares to decline. Details of specific risks relating to our common shares are described below.
Some risks are static while other risks may change and will vary depending on global and corporate developments that may occur now or in the future. The risk factors below identify risks relating to our industry, Company and common shares. These risks may not cover all and future applicable risk factors applicable to us.
Risks Relating to Our Industry
The seaborne transportation industry is cyclical and volatile, and this may lead to reductions in our charter hire rates, vessel values and results of operations.
The international seaborne transportation industry is both cyclical and volatile in terms of charter hire rates and profitability. The degree of charter hire rate volatility for vessels has varied widely. A worsening of current global economic conditions may cause the charter rates applicable to our vessels to decline and thereby adversely affect our ability to charter or re-charter our vessels and any renewal or replacement charters that we enter into, may not be sufficient to allow us to operate our vessels profitably. Fluctuations in charter hire rates result from changes in the supply of and demand for vessel capacity and changes in the supply of and demand for energy resources, commodities, semi-finished and finished consumer and industrial products internationally carried at sea. If we enter into a charter when charter hire rates are low, our revenues and earnings will be adversely affected. In addition, a decline in charter hire rates is likely to cause the market value of our vessels to decline. We cannot assure you that we will be able to successfully charter our vessels in the future or renew our existing charters at rates sufficient to allow us to operate our business profitably, meet our obligations or pay dividends to our shareholders. Additionally, the supply of vessels generally increases with deliveries of new vessels and decreases with the recycling of older vessels, conversion of vessels to other uses, such as floating production and storage facilities, and loss of tonnage as a result of casualties. An over-supply of vessel capacity, combined with a decline in the demand for such vessels, may result in a reduction of charter hire rates. The factors affecting the supply and demand for vessels are outside of our control, and the nature, timing and degree of changes in industry conditions are unpredictable.
Factors that influence demand for vessel capacity include:
•supply of and demand for and seaborne transportation of energy resources, commodities, and semi-finished and finished consumer and industrial products;
•national policies regarding strategic oil inventories (including if strategic reserves are set at a lower level in the future as oil decreases in the energy mix);
•changes in the exploration for and production of energy resources, commodities, semi-finished and finished consumer and industrial products;
•changes in the production levels of crude oil (including in particular production by OPEC, the United States and other key producers);
•any restriction on crude oil production imposed by OPEC and non-OPEC oil producing countries;
•the location of consuming regions for energy resources, commodities, semi-finished and finished consumer and industrial products;
•the location of regional and global exploration, production and manufacturing facilities;
•competition from, supply of and demand for alternative sources of energy;
•the globalization of production and manufacturing;
•disruptions and developments in international trade;
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•regional availability of refining capacity and inventories compared to geographies of oil production regions;
•changes in seaborne and other transportation patterns, including the distance cargo is transported by sea, changes in the price of crude oil and related benchmarks, and changes in trade patterns;
•changes in governmental and maritime self-regulatory organizations’ rules and regulations or actions taken by regulatory authorities;
•environmental concerns and uncertainty around new regulations in relation to, amongst others, new technologies which may delay the ordering of new vessels;
•global and regional economic and political conditions, international sanctions, embargoes, import and export restrictions, the imposition of tariffs, port fees, nationalizations, piracy, terrorist attacks, strikes, and armed conflicts;
•changes in government subsidies of shipbuilding;
•construction or expansion of new or existing pipelines or railways; and
•currency exchange rates, most importantly versus the U.S. dollar, or USD.
Demand for our vessels and charter hire rates are dependent upon, among other things, seasonal and regional changes in demand and changes to the capacity of the world fleet. There can be no assurance that global economic growth will be at a rate sufficient to utilize existing or new capacity. Continued adverse economic, political or social conditions or other developments including inflationary pressure and global conflicts, could further negatively impact charter hire rates, and therefore have a material adverse effect on our business, results of operations and ability to pay dividends.
Factors that influence the supply of vessel capacity include:
•supply and demand for energy resources, including oil and petroleum products, seaborne transportation of such energy resources, and alternative energy sources;
•competition from alternative sources of energy and from other shipping companies and other modes of transport;
•the number and size of newbuilding orders and deliveries, including slippage in deliveries, as may be impacted by the availability of financing for shipping activity;
•the degree of scrapping or recycling of older vessels, depending, among other things, on scrapping or recycling rates or international scrapping or recycling regulations;
•the price of steel and vessel equipment;
•product imbalances (affecting the level of trading activity) and developments in international trade;
•changes in environmental and other regulations that may limit the useful lives of vessels;
•the number of vessels that are out of service, namely those that are laid-up, dry-docked, arrested, awaiting repairs after damage or accident, or otherwise not available for hire;
•availability of financing for new vessels and shipping activity;
•changes in national or international regulations that may effectively cause reductions in the carrying capacity of vessels or early obsolescence of tonnage;
•changes in environmental and other regulations that may limit the useful lives of vessels or require costly overhauls, including ballast water management, low sulfur fuel consumption regulations, and reductions in CO2 emissions;
•the number of vessels used as storage units;
•speed of vessel operation;
•port and/or canal congestion, and weather delays;
•business disruptions, including supply chain disruptions and congestion, due to natural and other disasters;
•sanctions (in particular sanctions on Russia, Iran, China and Venezuela, among other countries and individuals); and
▪technological advances in vessel design, capacity, propulsion technology and fuel consumption efficiency.
These factors influencing the supply of and demand for shipping capacity are outside of our control, and we may not be able to correctly assess the nature, timing and degree of changes in industry conditions.
Our business is affected by macroeconomic conditions, including rising inflation, high interest rates, market volatility, economic uncertainty and supply chain constraints.
Various macroeconomic factors, including high inflation and interest rates, global supply chain constraints, downturns in the worldwide economy and the effects of overall economic conditions and uncertainties such as those resulting from the current and future conditions in the global financial markets, could materially adversely affect our business, results of operations, financial condition and ability to pay dividends. Inflation and rising interest rates may negatively impact us by increasing our operating costs and our cost of borrowing. In addition, elevated interest rates persisting longer than expected cause refinancing risk for balloon payments and revolving credit facilities and potential covenant pressure. Interest rates, the liquidity of the credit markets and the volatility of the capital markets could also affect the operation of our business and our ability to raise capital on favorable terms, or at all.
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The world economy continues to face a number of actual and potential challenges, including the war between Ukraine and Russia and between Israel and Iran and related conflicts in the Middle East, the potential disruption of shipping routes including due to low water levels in the Panama Canal and ongoing vessel attacks in the Red Sea, current trade tension between the United States and China, political instability in Venezuela, the Middle East and the South China Sea region and other geographic countries and areas, tensions in and around the Red Sea or Russia and NATO tensions, China and Taiwan disputes, terrorist or other attacks, war (or threatened war) or international hostilities, banking crises or failures and real estate crises, as well as significant inflationary pressures, due to the increases in fuel and grain prices following the sanctions imposed on Russia.
The current state of the global financial markets and current economic conditions may adversely impact our results of operation, financial condition, cash flows and ability to obtain financing or refinance our existing and future credit facilities on acceptable terms, which may negatively impact our business.
As of December 31, 2025, we had total outstanding indebtedness of $2.6 billion under our various credit facilities, lease debt financing and bonds. In addition, we had a further $0.2 billion of finance lease obligations in our associated companies.
Major market disruptions and adverse changes in market conditions and regulatory climate in China, the United States, the European Union and worldwide may adversely affect our business or impair our ability to borrow amounts under credit facilities or any future financial arrangements. Credit markets and the debt and equity capital markets have at times in the past been distressed and there is uncertainty surrounding the future of the global credit markets, particularly for the shipping industry.
Certain banks that have historically been significant lenders to the shipping industry may reduce or cease lending activities in the shipping industry. New banking regulations, including larger capital requirements and the resulting policies adopted by lenders, could reduce lending activities. We may experience difficulties obtaining financing commitments in the future if current or future lenders are unwilling to extend financing to us or unable to meet their funding obligations due to their own liquidity, capital or solvency issues. The current state of global financial markets and current economic conditions might adversely impact our ability to issue additional equity at prices that will not be dilutive to our existing shareholders or preclude us from issuing equity at all. Also, as a result of concerns about the stability of financial markets generally, and the solvency of counterparties specifically, the availability and cost of obtaining money from the public and private equity and debt markets may become more difficult. Many lenders have increased interest rates, enacted tighter lending standards, refused to refinance existing debt at all or on terms similar to current debt, and reduced, and in some cases ceased, to provide funding to borrowers and other market participants, including equity and debt investors, and some have been unwilling to invest on attractive terms or even at all. Due to these factors, we cannot be certain that financing will be available if needed and to the extent required, or that we will be able to refinance our existing and future credit facilities, on acceptable terms or at all. If financing or refinancing is not available when needed, or is available only on unfavorable terms, we may be unable to meet our obligations as they come due or we may be unable to enhance our existing business, complete additional vessel acquisitions or otherwise take advantage of business opportunities as they arise or respond to competitive pressures. Our failure to obtain such funds could have a material adverse effect on our business, results of operations and financial condition, as well as our cash flows, including cash available for dividends to our shareholders.
Our operations inside and outside of the United States expose us to global risks, such as political instability, terrorist attacks, international hostilities, economic sanctions or other trade restrictions and global public health concerns, which may affect the seaborne transportation industry, and adversely affect our business.
We are an international company and primarily conduct our operations outside of the United States, and our business, results of operations, cash flows, financial condition and ability to pay dividends, if any, in the future may be adversely affected by changing economic, political and government conditions in the countries and regions where our vessels or rigs are employed or registered. Moreover, we operate in a sector of the economy that is likely to be adversely impacted by the effects of political conflicts.
In 2022, the United States, the United Kingdom, and the European Union, among other countries, announced various economic sanctions against Russia in connection with the war in the Ukraine, which may adversely impact our business, given Russia’s role as a major global exporter of crude oil and natural gas. The war could result in the imposition of further economic sanctions or new categories of export restrictions against individuals or entities in or connected to Russia. While in general much uncertainty remains regarding the global impact of the continuation of the conflict in Ukraine, and any potential resolution thereof, it is possible that such tensions could adversely affect our business, financial condition, operations results, and cash flows.
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The United States has also issued several Executive Orders that prohibit certain transactions related to Russia, including prohibitions on the importation of certain Russian energy products into the United States (including crude oil, petroleum, petroleum fuels, oils, liquefied natural gas and coal), and all new investments in Russia by U.S. persons, among other prohibitions and export controls, and has issued numerous determinations authorizing the imposition of sanctions on persons who operate or have operated in the energy, metals and mining, and marine sectors of the Russian Federation economy, among other sectors. Designations under these sanctions programs are continuing, including in October 2025 against Lukoil, Rosneft, and certain of their subsidiaries. Increased restrictions on these sectors, or the expansion of sanctions to new sectors, may pose additional risks that could adversely affect our business and operations.
Furthermore, the United States, in conjunction with the G7, agreed on September 2, 2022 to implement a Russian petroleum “price cap policy” which prohibits a variety of specified services related to the maritime transport of Russian Federation origin crude oil and petroleum products, including trading/commodities brokering, financing, shipping, insurance (including reinsurance and protection and indemnity), flagging, and customs brokering. An exception exists to permit such services when the price of the seaborne Russian oil does not exceed the relevant price cap; but implementation of this price exception relies on a recordkeeping and attestation process that requires each party in the supply chain of seaborne Russian oil to demonstrate or confirm that oil has been purchased at or below the price cap. Further, effective as of February 27, 2025, the United States has also prohibited the provision of petroleum services by U.S. persons to persons located in Russia. An exception exists for the provision of petroleum services in certain specified circumstances, including for the provision of services for products purchased at or below the aforementioned price caps. As of September 2025, the European Union, United Kingdom and Canada also agreed to lower their price cap on Russian crude oil from $60 to $47.60 per barrel, and which was further reduced to $44.10 effective February 1, 2026, based on an automatic dynamic pricing adjustment setting the cap at 15% below the average market price for Russian crude oil during the relevant reference period. Violations of the petroleum services policy or price cap policy, or the risk that information, documentation, or attestations provided by parties in the supply chain are later determined to be false, may pose additional risks adversely affecting our business. While much uncertainty remains, the potential that the European Union, in conjunction with the G7, might replace the price cap policy in favor of a full maritime services ban for Russian crude oil exports and/or other petroleum products may also pose further risks that could adversely affect our business.
Our business could also be adversely impacted by trade tariffs, trade embargoes or other economic sanctions that limit trading activities by the United States or other countries with countries in the Middle East, Asia or elsewhere as a result of terrorist attacks, hostilities or diplomatic or political pressures, including as a result of ongoing tensions involving Russia, Iran, and China and the current conflicts in the Middle East.
Governments may also turn to trade barriers to protect their domestic industries against foreign imports, thereby depressing shipping demand. Protectionist developments, or the perception that they may occur, may have a material adverse effect on global economic conditions, and may significantly reduce global trade. Moreover, increasing trade protectionism may cause an increase in (a) the cost of goods exported from regions globally, (b) the length of time required to transport goods and (c) the risks associated with exporting goods. Such increases may significantly affect the quantity of goods to be shipped, shipping time schedules, voyage costs and other associated costs, which could have an adverse impact on our charterers’ business, operating results and financial condition and could thereby affect their ability to make timely charter hire payments to us. This could have a material adverse effect on our business, financial condition and operating results.
In particular, there is significant uncertainty about the future relationship between the United States and China and other exporting countries, such as Canada, Mexico, and the European Union, among others, with respect to trade policies, treaties, government regulations, and tariffs, some of which remain subject to legal challenge. For example, in April 2025, the Office of the USTR enacted vessel service fees under Section 301 of the Trade Act of 1974 which were imposed as scheduled beginning on October 14, 2025, but were suspended for one year as of November 10, 2025 as a result of broader trade negotiations between the United States and China, after China’s Ministry of Transport had announced retaliatory port fees applicable to certain vessels calling at Chinese ports that were built or flagged in the United States or owned or operated by certain U.S.-linked persons. China’s retaliatory service fees on United States vessels were also suspended for a period of one year on the same date.
The growth of the so‑called “shadow fleet” engaged in opaque or sanctions‑evading trades may distort market dynamics, increase regulatory and insurance risks, and negatively impact our operations, asset values and commercial prospects.
A significant portion of the global tanker fleet has increasingly operated outside traditional regulatory, classification, insurance, and tracking frameworks to transport crude oil from sanctioned jurisdictions such as Russia and Iran. These often older vessels, operated through complex ownership structures, lacking transparent insurance, and using practices such as AIS manipulation, are commonly referred to as the “shadow fleet”. The expansion of the “shadow fleet” presents several material risks to our business.
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As shadow‑fleet vessels typically operate without the same compliance, vetting, safety, crewing, and insurance requirements applicable to legitimate operators, they may accept lower freight rates, divert volumes away from mainstream markets, and artificially tighten or loosen tonnage availability on key trade routes. These distortions can negatively affect our ability to secure profitable employment for our vessels, particularly in segments impacted by Russia‑related sanctions and altered trade flows.
Additionally, improper or falsified documentation in the shadow‑fleet supply chain increases the risk that counterparties, cargo interests, or intermediaries with whom we interact may inadvertently violate sanctions or price‑cap rules. Because the U.S. and EU sanctions regimes impose strict liability, we could face investigations, penalties, vessel detentions, or reputational harm if a charterer or sub‑charterer provides inaccurate attestations or misrepresents the nature, origin, or price of cargo. This risk has increased following the expansion of the Russian price‑cap enforcement framework in 2024–2025.
Finally, the shadow fleet may accelerate regulatory changes affecting vessel age limits, insurance requirements, and classification rules. Because shadow‑fleet vessels tend to be significantly older, regulators may impose stricter age‑based operational restrictions, which could affect the long‑term commercial profile, resale values, or employment prospects of industry fleets more broadly, including ours. Any of these developments could adversely affect our operations, earnings, cash flows, ability to access key markets, or the market values and ability to charter our vessels.
We have provided parent company guarantees for certain of our subsidiaries’ obligations, which could expose us to material liabilities.
From time to time, we provide parent company guarantees in respect of the obligations of certain of our subsidiaries under charter agreements and other commercial contracts. These guarantees may require us to satisfy the obligations of the relevant subsidiary in the event that such subsidiary fails to perform its contractual commitments. Any requirement to make payments under such guarantees could materially impact our cash flows and reduce the funds available for other corporate purposes, including the repayment of debt, capital expenditures and the payment of dividends. In addition, the triggering of a guarantee claim could negatively affect our reputation, increase our cost of capital or limit our ability to obtain similar contracts in the future.
There can be no assurance that our subsidiaries will continue to perform their obligations under their charter or other commercial arrangements, or that we will not be required to make payments under these guarantees. If a subsidiary were unable to meet its obligations due to operational issues, financial distress, counterparty disputes, force majeure events or other adverse developments, counterparties could seek recourse directly against us under the applicable guarantee. Any such enforcement could require us to make significant payments, adversely affect our liquidity, increase our leverage, limit our ability to obtain additional financing and have a material adverse effect on our business, financial condition and results of operations.
Safety, environmental and other governmental and other requirements expose us to liability, and compliance with current and future regulations could require significant additional expenditures, which could have a material adverse effect on our business and financial results.
Our operations are affected by extensive and changing international, national, state and local laws, regulations, treaties, conventions and standards in force in international waters, the jurisdictions in which our tankers and other vessels operate, and the country or countries in which such vessels are registered, including those governing the management and disposal of hazardous substances and wastes, the cleanup of oil spills and other contamination, air emissions, and water discharges and ballast and bilge water management. Compliance with these regulations is costly and could have a material adverse effect on our business and financial results.
In addition, vessel classification societies and the requirements set forth in the International Maritime Organization’s, or IMO, International Management Code for the Safe Operation of Ships and for Pollution Prevention, or ISM Code, also impose significant safety and other requirements on our vessels. In complying with current and future environmental requirements, vessel owners and operators may also incur significant additional costs in meeting new maintenance and inspection requirements, in developing contingency arrangements for potential spills and in obtaining insurance coverage. Government regulation of vessels, particularly in the areas of safety and environmental requirements, can be expected to become stricter in the future and require us to incur significant capital expenditures to keep our vessels in compliance, or even to recycle or sell certain vessels altogether.
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Our operations are subject to all of the hazards and operating risks associated with drilling for and production of oil and natural gas, including natural disasters, the risk of fire, explosions, blowouts, surface cratering, uncontrollable flows of natural gas, oil and formation water, pipe or pipeline failures, abnormally pressured formations, casing collapses and environmental hazards such as oil spills, natural gas leaks, ruptures or discharges of toxic gases, all of which could cause substantial financial losses. Many of these requirements are designed to reduce the risk of oil spills and other pollution, and our compliance with these requirements can be costly. Under local, national and foreign laws, as well as international treaties and conventions, we could incur material liabilities, including cleanup obligations, natural resource damages and third-party claims for personal injury or property damages, in the event that there is a release of petroleum or other hazardous substances from our vessels or otherwise in connection with our current or historic operations. A failure to comply with such environmental laws and regulations, or to obtain or maintain necessary environmental permits or approvals, or a non-compliant release of oil or other hazardous substances in connection with our drilling contracts could subject us to significant administrative and civil fines and penalties, and other civil or criminal sanctions, remediation costs for natural resource damages, third-party damages, material adverse publicity and, in certain instances, seizure or detention of our vessels.
For additional information on United States regulations, please see “Item 4. Information on the Company—B. Business Overview—Environmental and Other Regulations in the Shipping Industry – United States Regulations”.
Developments in safety and environmental requirements relating to the recycling of vessels may result in escalated and unexpected costs.
In June 2025, the 2009 Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships, or the Hong Kong Convention, entered into force, which aims to ensure ships recycled at the end of their operational lives do not pose any unnecessary risks to the environment, human health and safety. As such, each ship sent for recycling is required to establish, maintain, update, and carry an Inventory of Hazardous Materials. The hazardous materials, whose use or installation are prohibited in certain circumstances, are listed in an appendix to the Hong Kong Convention, and each vessel’s Inventory on Hazardous Materials must include information on the hazardous materials with a quantity above the threshold values specified in the relevant EU resolution and are identified in a ship’s structure and equipment.
In 2013, the European Parliament and the Council of the European Union adopted the EU Ship Recycling Regulation, or ESSR, which, among other things, retains the requirements of the Hong Kong Convention and requires that commercial EU-flagged vessels of 500 gross tonnage and above may be recycled only at shipyards included on the European List of Authorised Ship Recycling Facilities, or the European List. The European List of Authorised Ship Recycling Facilities, or European List, presently includes eight facilities in Turkey but no facilities in the major ship recycling countries in Asia. The combined capacity of the European List facilities may prove insufficient to absorb the total recycling volume of EU-flagged vessels. This circumstance, taken in tandem with the possible decrease in cash sales, may result in longer wait times for divestment of recyclable vessels as well as downward pressure on the purchase prices offered by European List shipyards. Furthermore, facilities located in the major ship recycling countries generally offer significantly higher vessel purchase prices, and as such, the requirement that we utilize only European List shipyards may negatively impact revenue from the residual values of our vessels.
In addition, the European Waste Shipment Regulation requires that non-EU flagged ships departing from EU ports be recycled only in Organisation for Economic Cooperation and Development, or OECD, member countries.
These regulatory requirements may lead to cost escalation by shipyards, repair yards and recycling yards. This may then result in a decrease in the residual recycling value of a vessel, which could potentially not cover the cost to comply with the latest requirements, which may have an adverse effect on our future performance, results of operation, cash flows and financial position.
Climate change, greenhouse gas restrictions and a shift in consumer demand for oil may adversely impact our operations and markets.
Due to the risk of climate change, a number of countries and the IMO have adopted, or are considering the adoption of, regulatory frameworks to reduce greenhouse gas emissions. These regulatory measures may include, among others, adoption of cap and trade regimes, carbon taxes, sulfur emission reductions, “levels of ambition,” the EU’s Emissions Trading Scheme, or EU ETS, increased efficiency standards and incentives or mandates for renewable energy. For additional information on this IMO initiative, please see “Item 4. Information on the Company—B. Business Overview—Environmental and Other Regulations in the Shipping Industry”.
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On November 13, 2021, the Glasgow Climate Pact, which calls for signatory states to voluntarily phase out fossil fuel subsidies, was announced following discussions at the 2021 United Nations Climate Change Conference, or COP26. A shift away from these products could potentially affect the demand for our vessels and negatively impact our future business, operating results, cash flows and financial position. COP26 also produced the Clydebank Declaration, in which 24 signatory states (including the United States and United Kingdom) announced their intention to voluntarily support the establishment of zero-emission shipping routes. Governmental and investor pressure to voluntarily participate in these green shipping routes could cause us to incur significant additional expenses to “green” our vessels.
Territorial taxonomy regulations in geographies where we are operating and are subject to regulatory oversight might jeopardize the level of access to capital. For example, the European Union has already introduced a set of criteria for economic activities which should be framed as ‘green’, called EU Taxonomy. As long as we are an EU-based company meeting the NFRD prerequisites, we will be eligible to report our taxonomy eligibility and alignment. Based on the current version of the regulation, companies that own assets shipping fossil fuels are considered as not aligned with EU Taxonomy. The outcome of such provision might be either an increase in the cost of capital and/or gradually reduced access to financing as a result of financial institutions’ compliance with EU Taxonomy.
Adverse effects upon the oil and gas industry relating to climate change, including growing public concern about the environmental impact of climate change, may also adversely affect demand for our services. For example, increased regulation of greenhouse gases or other concerns relating to climate change may reduce the demand for oil and gas in the future or create greater incentives for use of alternative energy sources and alternate modes of transporting goods. In addition, the physical effects of climate change, including changes in weather patterns, extreme weather events, rising sea levels, scarcity of water resources, may negatively impact our operations. Any long-term material adverse effect on the oil and gas industry could have a significant financial and operational adverse impact on our business that we cannot predict with certainty at this time.
Additionally, a significant portion of our earnings are related to the crude oil industry. A shift in or disruption of the consumer demand from crude oil towards other energy resources such as wind energy, solar energy, hydrogen energy, nuclear energy, renewable energy, electricity, natural gas, liquefied natural gas, renewable energy, ammonia or hydrogen will potentially affect the demand for certain of our vessels and rigs. While the International Energy Agency forecasts “peak oil”, the year when the maximum rate of extraction oil is reached, to be 2030 and OPEC forecasts global oil demand to continue to grow through at least 2050, the shift in consumer demand away from oil and oil products could have a material adverse effect on our future performance, results of operation, cash flows and financial position.
Regulations relating to ballast water discharge may adversely affect our revenues and profitability.
The IMO has imposed updated guidelines for ballast water management systems specifying the maximum number of viable organisms allowed to be discharged from a vessel's ballast water. The “D-2 standard” specifies the maximum amount of viable organisms allowed to be discharged, and for most ships, compliance with the D-2 standard involved installing on-board systems to treat ballast water and eliminate unwanted organisms, which caused us to incur substantial costs.
U.S. regulations are also currently changing. Although the 2013 Vessel General Permit, or VGP, program and U.S. National Invasive Species Act, or NISA, are currently in effect to regulate ballast discharge, exchange and installation, in October 2024, the U.S. Environmental Protection Agency, or EPA, finalized its new rule on Vessel Incidental Discharge Standards of Performance, which means that the U.S. Coast Guard, or USCG, must now develop corresponding regulations regarding ballast water within two years of that date. The new regulations could require the installation of new equipment, which may cause us to incur substantial costs.
Our 46 vessels employed in the spot market or under time charter agreements either have already been fitted with ballast water treatment systems or will have them fitted within the required deadlines. The costs of compliance may be substantial and could adversely affect our profitability.
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If our vessels call at ports located in or our rigs operate in countries or territories that are the subject of sanctions or embargoes or engage in other transactions or dealings in violation of applicable sanctions laws, it could lead to monetary fines or penalties and adversely affect our reputation and the market for our common shares and its trading price.
Although we intend to maintain compliance with all applicable sanctions and embargo laws, and we endeavor to take precautions reasonably designed to mitigate such risks, it is possible that, in the future, our vessels may call on ports located in sanctioned countries or territories, or engage in other such transactions or dealings that would be violative of applicable sanctions, on charterers’ instructions and/or without our consent. Our contracts with our charterers may prohibit them from causing our vessels to call on ports located in sanctioned countries or territories or carrying cargo for entities that are the subject of sanctions. Although our charterers may, in certain cases, control the operation of our vessels, we have monitoring processes in place reasonably designed to ensure our compliance with applicable economic sanctions and embargo laws. Nevertheless, it remains possible that our charterers may cause our vessels to trade in violation of sanctions provisions without our consent. If such activities result in a violation of applicable sanctions or embargo laws, we could be subject to monetary fines, penalties, or other sanctions, and our reputation and the market for our common shares could be adversely affected.
Any civil penalties for violations of U.S. sanctions are imposed on a strict liability basis. Accordingly, a party need not know it is violating sanctions and need not intend to violate sanctions to be liable. We could be subject to monetary fines, penalties, or other sanctions for violating applicable sanctions or embargo laws even in circumstances where our conduct, or the conduct of a charterer, is consistent with our sanctions-related policies, unintentional or inadvertent. In practice, U.S. regulators consider the facts and circumstances surrounding an apparent violation when determining the appropriate enforcement response, taking into account various aggravating or mitigating factors.
The applicable sanctions and embargo laws and regulations vary in their application, and by jurisdiction, and do not all apply to the same covered persons or proscribe the same activities. In addition, the sanctions and embargo laws and regulations of each jurisdiction may be amended to increase or reduce the restrictions they impose over time, and the lists of persons and entities designated under these laws and regulations are amended frequently. Moreover, most sanctions regimes provide that entities owned or controlled by the persons or entities designated in such lists are also subject to sanctions. The United States, United Kingdom and European Union have enacted new and more aggressive sanctions programs in recent years. Additional countries or territories, as well as additional persons or entities within or affiliated with those countries or territories, have, and in the future will, become the target of sanctions. These require us to be diligent in ensuring our compliance with sanctions laws. Further, the United States, European Union and United Kingdom have increased their focus on sanctions enforcement with respect to the shipping sector. Current or future counterparties of ours may be affiliated with persons or entities that are or may be in the future the subject of sanctions or embargoes imposed by the United States, United Kingdom, and the European Union and/or other international bodies. If we determine that such sanctions require us to terminate existing or future contracts to which we, or our subsidiaries, are party or if we are found to be in violation of such applicable sanctions, our results of operations may be adversely affected, or we may suffer reputational harm. We may also experience damage to our reputation if the vessels we have sold are being used in sanctioned activity in violation of the contract of sale, either by the buyer or by a third party.
As a result of the war in Ukraine and the conflict between Israel and Hamas, the United States, European Union and United Kingdom, together with numerous other countries, have imposed significant economic sanctions which may adversely affect our ability to operate in these regions and also restrict parties whose cargo we carry. Sanctions against Russia have also placed significant prohibitions on the maritime transportation of seaborne Russian oil, the importation of certain Russian energy products and other goods, and new investments in the Russian Federation. These sanctions further limit the scope of permissible operations including the maintenance of our vessels and the services provided to our vessels and crew while operating in these regions, and cargo we may carry. We may also encounter potential contractual disputes with charterers and insurers due to the various sanctions targeting Russian interests and Russian cargo.
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Although we believe that we have been in compliance with all applicable sanctions and embargo laws and regulations in 2025, and intend to maintain such compliance, there can be no assurance that we or our charterers will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. Any such violation could result in fines, penalties, vessel detentions or blacklisting or other sanctions that could severely impact our ability to access U.S. capital markets and conduct our business, and could result in our reputation and the markets for our securities to be adversely affected and/or in some investors deciding, or being required, to divest their interest, or not to invest, in us. In addition, certain institutional investors may have investment policies or restrictions that prevent them from holding securities of companies that have contracts with countries or territories identified by the U.S. government as state sponsors of terrorism. The determination by these investors not to invest in, or to divest from, our shares may adversely affect the price at which our shares trade. Moreover, our charterers may violate applicable sanctions and embargo laws and regulations as a result of actions that do not involve us or our vessels, and those violations could in turn negatively affect our reputation. In addition, our reputation and the market for our securities may be adversely affected if we engage in certain other activities, such as entering into charters with individuals or entities that are not controlled by the governments of countries or territories that are the subject of certain U.S. sanctions or embargo laws, or engaging in operations associated with those countries or territories pursuant to contracts with third parties that are unrelated to those countries or territories or entities controlled by their governments. Investor perception of the value of our common shares may be adversely affected by the consequences of war, the effects of terrorism, civil unrest and governmental actions in countries or territories that we operate in.
In the highly competitive international seaborne transportation industry, we may not be able to compete for charters with new entrants or established companies with greater resources, and as a result we may be unable to employ our vessels profitably.
We employ our vessels in a highly competitive market that is capital intensive and highly fragmented, and competition arises primarily from other vessel owners. Competition for seaborne transportation of goods and products is intense and depends on charter rates and the price, location, size, age, condition and acceptability of the vessel and its operators to charterers. Due in part to the highly fragmented market, and although we believe that no single competitor has a dominant position in the markets in which we compete, competitors with greater resources may be able to devote greater financial and other resources to certain activities than we can, and could operate larger fleets than we may operate and thus be able to offer lower charter rates and higher quality vessels than we are able to offer. If this were to occur, we may be unable to retain or attract new charterers on attractive terms or at all, which may have a material adverse effect on our business, financial condition and results of operations. We cannot give assurances that we will continue to compete successfully with our competitors or that these factors will not erode our competitive position in the future.
Future exploration and drilling results are uncertain and involve substantial risks and costs.
Drilling for oil involves numerous risks, including the risk that our customers to whom we have drilling contracts with, may not encounter commercially productive reservoirs. The costs of drilling, completing and operating wells are often uncertain, and drilling operations may be curtailed, delayed or canceled as a result of a variety of factors, including:
•unexpected drilling conditions;
•title problems;
•pressure or irregularities in formations;
•equipment failures or accidents;
•inflation in exploration and drilling costs;
•fires, explosions, blowouts or surface cratering;
•marine risks such as capsizing, collisions and hurricanes;
•difficulty identifying and retaining qualified personnel;
•other adverse weather conditions;
•lack of, or disruption in, access to pipelines or other transportation methods; and
•shortages or delays in the availability of services or delivery of equipment.
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We could experience periods of higher costs as activity levels fluctuate or if oil and natural gas prices rise. These increases could reduce our profitability, cash flow, and ability to complete development activities as planned.
An increase in oil and natural gas prices or other factors could result in increased development activity and investment in our areas of operations, which may increase competition for and cost of equipment, labor and supplies. Shortages of, or increasing costs for, experienced drilling crews and equipment, labor or supplies could restrict our operators’ ability to conduct desired or expected operations. In addition, capital and operating costs in the oil and natural gas industry have generally risen during periods of increasing oil and natural gas prices as producers seek to increase production in order to capitalize on higher oil and natural gas prices. In situations where cost inflation exceeds oil and natural gas price inflation, our profitability and cash flow, and our operators’ ability to complete development activities as scheduled and on budget, may be negatively impacted. Any delay in the drilling of new wells or significant increase in drilling costs could reduce our revenues and profitability.
The offshore drilling sector depends primarily on the level of activity in the offshore oil and gas industry, which is significantly affected by, among other things, volatile oil and gas prices, and may be materially and adversely affected by a decline in the offshore oil and gas industry.
The offshore contract drilling industry is cyclical and volatile and depends on the level of activity in oil and gas exploration and development and production in offshore areas worldwide. The availability of quality drilling prospects, exploration success, relative production costs, the stage of reservoir development and political and regulatory environments affect our customers' drilling campaigns. Oil and gas prices, and market expectations of potential changes in these prices, also significantly affect the level of activity and demand for drilling rigs.
An increase in oil and natural gas prices or other factors could result in increased development activity and investment in our areas of operations, which may increase competition for and cost of equipment, labor and supplies. Oil and gas prices are extremely volatile and are affected by numerous factors beyond our control, including the following:
•worldwide production and demand for oil and gas;
•the cost of exploring for, developing, producing and delivering oil and gas;
•expectations regarding future energy prices;
•advances in exploration, development and production technology;
•the ability of OPEC to set and maintain production levels and pricing;
•the level of production in non-OPEC countries;
•international sanctions on oil-producing countries or the lifting of such sanctions;
•government regulations, including restrictions on offshore transportation of oil and gas;
•local and international political, economic and weather conditions;
•domestic and foreign tax policies;
•the development and implementation of policies to increase the use of renewable energy;
•increased supply of oil and gas from onshore hydraulic fracturing and shale development, and the relative costs of offshore and onshore production of oil and gas;
•worldwide economic and financial problems and any resulting decline in demand for oil and gas and, consequently, our services;
•the policies of various governments regarding exploration and development of their oil and gas reserves;
•accidents, severe weather, natural disasters and other similar incidents relating to the oil and gas industry; and
•the worldwide military and political environment, including uncertainty or instability resulting from an escalation or additional outbreak of armed hostilities, insurrection, civil unrest, or other crises in the Middle East, eastern Europe or other geographic areas, or acts of terrorism around the world.
Lower oil and gas prices have negatively affected, and could continue to negatively affect, the offshore drilling sector and have resulted, and could continue to result, in reduced exploration and drilling. These reductions in commodity prices have reduced the demand for drilling rigs. Continued weakness in oil and gas prices may result in an excess supply of drilling rigs and intensify competition in the industry, which may result in drilling rigs, particularly older and lower specification drilling rigs, being idle for long periods of time. We cannot predict the future level of demand for drilling rigs or future conditions of the oil and gas industry.
The supply of rigs in the market has, as a result of longer periods of significant fluctuations in oil and gas prices, continued to outweigh the demand. This trend may continue and therefore may cause a reduction in day rates across all segments in 2025.
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Continued periods of low demand can cause excess rig supply and intensify competition in our industry, which often results in drilling rigs, particularly older and less technologically-advanced drilling rigs, being idle for long periods of time. We cannot predict the future level of demand for drilling rigs or future condition of the oil and gas industry with any degree of certainty. Any future decrease in exploration, development or production expenditures by oil and gas companies could further reduce our revenues and materially harm our business.
Demand for offshore contract drilling services is highly cyclical, which is primarily driven by the demand for drilling rigs and the available supply of drilling rigs. Demand for drilling rigs is driven by the levels of offshore exploration and development conducted by oil and natural gas companies, which is beyond our control and may fluctuate substantially from year-to-year and from region-to-region. Prolonged periods of reduced demand or excess rig supply have required us, and may in the future require us, to idle, sell or scrap rigs and enter into low day rate contracts or contracts with unfavorable terms. There can be no assurance that the demand for drilling rigs will increase in the future. Any decline in demand for drilling rigs or oversupply of drilling rigs could materially adversely affect our financial position, operating results or cash flows.
The offshore drilling industry is influenced by additional factors, including:
•the availability of competing offshore drilling rigs;
•rising interest rates and the availability of debt financing on acceptable terms;
•the level of costs for associated offshore oilfield and construction services;
•the availability of personnel for offshore drilling rigs;
•oil and gas transportation costs;
•the level of rig operating costs, including crew and maintenance;
•the taxation imposed on the exploration and production activity in the relevant jurisdiction;
•the discovery of new oil and gas reserves;
•the cost of non-conventional hydrocarbons, such as the exploitation of oil sands;
•the political and military environment of oil and gas reserve jurisdictions;
•regulatory restrictions on offshore drilling; and
•inflationary pressures and supply chain disruptions.
Any of these factors could reduce demand for our rigs and other offshore assets and adversely affect our business and results of operations.
New technologies may cause our current drilling methods to become obsolete, resulting in an adverse effect on our business.
The offshore contract drilling industry is subject to the introduction of new drilling techniques and services using new technologies, some of which may be subject to patent protection. As competitors and others use or develop new technologies, we may be placed at a competitive disadvantage and competitive pressures may force us to implement new technologies at substantial cost. In addition, competitors may have greater financial, technical and personnel resources that allow them to benefit from technological advantages and implement new technologies before we can. We may not be able to implement technologies on a timely basis or at a cost that is acceptable to us.
Increased inspection procedures, tighter import and export controls and new security regulations could increase costs and cause disruption of our business.
International shipping is subject to security and customs inspection and related procedures in countries of origin, destination and trans-shipment points. Under the U.S. Maritime Transportation Security Act of 2002, or the MTSA, the USCG issued regulations requiring the implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States and at certain ports and facilities. These security procedures can result in the seizure of the contents of our vessels, delays in the loading, offloading or trans-shipment, and the levying of customs duties, fines or other penalties against exporters or importers and, in some cases, carriers.
Future changes to the existing security procedures could impose additional financial and legal obligations on us. Changes to inspection procedures could also impose additional costs and obligations on our customers and may, in certain cases, render the shipment of certain types of cargo uneconomical or impractical. Any such changes or developments may have a material adverse effect on our business, financial condition and results of operations.
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We rely on our information security management system to conduct our business, and failure to protect this system against security breaches could adversely affect our business and results of operations, including on our vessels and rigs. Additionally, if this system fails or becomes unavailable for any significant period of time, our business could be harmed.
The safety and security of our vessels and efficient operation of our business, including processing, transmitting and storing electronic and financial information, depend on computer hardware and software systems, which are increasingly vulnerable to security breaches and other disruptions. Any significant interruption or failure of our information security management system or any significant breach of security could adversely affect our business and results of operations.
Our vessels rely on our information security management system for a significant part of their operations, including navigation, provision of services, propulsion, machinery management, power control, communications and cargo management. We have in place safety and security measures on our vessels, rigs and onshore operations to secure against cyber-security attacks and any disruption. However, these measures and technology may not adequately prevent security breaches despite our continuous efforts to upgrade and address the latest known threats, which are constantly evolving and have become increasingly sophisticated. If these threats are not recognized or detected until they have been launched, we may be unable to anticipate these threats and may not become aware in a timely manner of such a security breach, which could exacerbate any damage we experience. A disruption to the information security management system relating to any of our vessels could lead to, among other things, incorrect routing, collision, grounding and propulsion failure.
Beyond our vessels and rigs, we rely on industry accepted security measures and technology to securely maintain confidential and proprietary information maintained on our information security management system. However, these measures and technology may not adequately prevent security breaches. The technology and other controls and processes designed to secure our confidential and proprietary information, detect and remedy any unauthorized access to that information were designed to obtain reasonable, but not absolute, assurance that such information is secure and that any unauthorized access is identified and addressed appropriately. Such controls may in the future fail to prevent or detect, unauthorized access to our confidential and proprietary information. In addition, the foregoing events could result in violations of applicable privacy and other laws. If confidential information is inappropriately accessed and used by a third party or an employee for illegal purposes, we may be responsible to the affected individuals for any losses they may have incurred as a result of misappropriation. In such an instance, we may also be subject to regulatory action, investigation or liable to a governmental authority for fines or penalties associated with a lapse in the integrity and security of our information security management system.
We may be required to expend significant capital and other resources to protect against and remedy any potential or existing security breaches and their consequences. A cyber-attack could also lead to litigation, fines, other remedial action, heightened regulatory scrutiny and diminished customer confidence. In addition, our remediation efforts may not be successful, and we may not have adequate insurance to cover these losses.
The unavailability of the information security management system or the failure of this system to perform as anticipated for any reason could disrupt our business and could have a material adverse effect on our business, results of operations, cash flows and financial condition.
Furthermore, cybersecurity continues to be a key priority for regulators around the world, and some jurisdictions have enacted laws requiring companies to notify individuals or the general investing public of data security breaches involving certain types of personal data, including the United States. If we fail to comply with the relevant laws and regulations, we could suffer financial losses, a disruption of our businesses, liability to investors, regulatory intervention or reputational damage.
Additionally, artificial intelligence technologies, including generative artificial intelligence, continue to evolve rapidly. While we currently use such technologies in a limited capacity to support certain aspects of our operations, they are not integrated into our core business processes. We may choose to expand our use of artificial intelligence in the future; however, given the pace of technological development, we cannot fully assess the potential impact these technologies may have on our industry or our business at this time.
For more information on our cybersecurity risk management and strategy, please see “Item 16K. Cybersecurity”.
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Increasing scrutiny and changing expectations from investors, lenders and other market participants with respect to our ESG policies may impose additional costs on us or expose us to additional risks.
Companies across all industries are facing increasing scrutiny relating to their ESG policies. Investor advocacy groups, certain institutional investors, investment funds, lenders and other market participants have been focused on ESG practices and in recent years have placed importance on the implications and social cost of their investments. Companies which do not adapt to or comply with investor, lender or other industry shareholder expectations and standards, which are evolving, or which are perceived to have not responded appropriately to ESG issues, regardless of whether there is a legal requirement to do so, may suffer from reputational damage, costs related to litigation, and the business, financial condition, and/or stock price of such a company could be materially and adversely affected.
We may face increasing pressures from investors, lenders and other market participants, who are increasingly focused on climate change, to prioritize sustainable energy practices, reduce our carbon footprint and promote sustainability. As a result, we may be required to implement more stringent ESG procedures or standards so that our existing and future investors and lenders remain invested in us and make further investments in us, especially given the highly focused and specific trade of crude oil transportation in which we are engaged. Such ESG corporate transformation calls for an increased resource allocation to serve the necessary changes in that sector, increasing costs and capital expenditure. If we do not meet these standards, our business and/or our ability to access capital could be harmed.
Additionally, certain investors and lenders may exclude fossil fuel-related companies, such as us, from their investing portfolios altogether due to environmental, social and governance factors. These limitations in both the debt and equity capital markets may affect our ability to finance our plans for growth. If those capital markets are unavailable to us, or if we are unable to access alternative means of financing on acceptable terms, or at all, we may be unable to implement our business strategy, which would have a material adverse effect on our financial condition and results of operations and impair our ability to service our indebtedness. Further, it is likely that we will incur additional costs and require additional resources to monitor, report and comply with wide ranging ESG requirements. The occurrence of any of the foregoing could have a material adverse effect on our business and financial condition.
See further details of our ESG efforts at “Item 4.B.—Business Overview” and our latest Environmental Social Governance Report, which may be found on our website at https://www.sflcorp.com/esg/. The information on our website is not incorporated by reference into this annual report.
Technological innovation and quality and efficiency requirements from our customers could reduce our charter hire income and the value of our vessels and may cause our current drilling methods to become obsolete.
Our customers, in particular those in the oil industry, have a high and increasing focus on quality and compliance standards with their suppliers across the entire supply chain, including the shipping and transportation segment. Our continued compliance with these standards and quality requirements is vital for our operations. Related risks could materialize in multiple ways, including a sudden and unexpected breach in quality and/or compliance concerning one or more vessels, or a continuous decrease in the quality concerning one or more vessels occurring over time. Moreover, continuous increasing requirements from oil industry constituents can further complicate our ability to meet the standards. Any noncompliance by us, either suddenly or over a period of time, on one or more vessels, or an increase in requirements by oil operators above and beyond what we deliver, may have a material adverse effect on our future performance, results of operations, cash flows and financial position.
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The charter hire rates and the value and operational life of a vessel are determined by a number of factors including the vessel’s efficiency, operational flexibility and physical life. Efficiency includes speed, fuel economy and the ability to load and discharge cargo quickly. Flexibility includes the ability to enter harbors, utilize related docking facilities and pass through canals and straits. The length of a vessel’s physical life is related to its original design and construction, its maintenance and the impact of the stress of operations. More technologically advanced vessels have been built since the owned or leased vessels in our fleet, which have an average age of approximately nine years as of December 31, 2025, were constructed and vessels with further advancements may be built that are even more efficient or more flexible or have longer physical lives, including new vessels powered by alternative fuels or which are otherwise perceived as more environmentally friendly by charterers. We face competition from companies with more modern vessels having more fuel efficient designs than our vessels, or eco vessels, and if new vessels are built that are more efficient or more flexible or have longer physical lives than the current eco vessels, competition from the current eco vessels and any more technologically advanced vessels could adversely affect the amount of charter hire payments we receive for our vessels and the resale value of our vessels could significantly decrease. In these circumstances, we may also be forced to charter our vessels to less creditworthy charterers, either because the oil majors and other top tier charters will not charter older and less technologically advanced vessels or will only charter such vessels at lower contracted charter rates than we are able to obtain from these less creditworthy, second tier charterers. Similarly, technologically advanced vessels are needed to comply with environmental laws, the investment, in which along with the foregoing, could have a material adverse effect on our results of operations, charter hire payments, resale value of vessels, cash flows, financial condition and ability to pay dividends.
Additionally, the offshore contract drilling industry is subject to the introduction of new drilling techniques and services using new technologies, some of which may be subject to patent protection. As competitors and others use or develop new technologies, we may be placed at a competitive disadvantage and competitive pressures may force us to implement new technologies at substantial cost. In addition, competitors may have greater financial, technical and personnel resources that allow them to benefit from technological advantages and implement new technologies before we can. We may not be able to implement technologies on a timely basis or at a cost that is acceptable to us.
Prolonged or significant downturns in the tanker, dry bulk carrier, container and offshore drilling charter markets may have an adverse effect on our earnings; and governmental and environmental laws and regulations may add to the costs of the charterers of our drilling rigs or limit their drilling activity which may adversely affect their ability to make payments to us.
Although most of our vessels are employed on medium or long-term charters, prolonged or significant downturns in the markets in which we operate could have a significant and adverse effect in finding new customers in the short and long-term market and on our existing customers’ ability to continue to fulfill their obligations to us. It also affects the resale value of vessels.
The tanker market has historically been volatile. Crude oil prices averaged approximately $69 per barrel in 2025 before surging to approximately $94 per barrel as of March 9, 2026, reflecting recent market volatility and geopolitical supply concerns. In previous years, the tanker market was relatively strong due to demand growth, tight supply and ongoing trade inefficiencies caused by geopolitical and climate related events. However, with continued uncertainty, including ongoing conflict in the Middle East, disruption to Persian Gulf shipping lanes, and U.S. sanctions targeting Russian oil, there can be no assurance that the tanker market will sustain its recent rally.
The containership charter market ended on a strong note in 2025, despite the significant volatility and disruption in global trade and supply chains experienced in 2024. Despite the Red Sea conflict, the containership market experienced consistent demand and record-high rates in 2025.
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Additionally, the offshore drilling industry is dependent on demand for services from the oil and gas exploration and production industry, and, accordingly, the charterers of our drilling rigs are directly affected by the adoption of laws and regulations that, for economic, environmental or other policy reasons, curtail exploration and development drilling for oil and gas. Current U.S. President Trump signed an executive order in January 2025 focused on increasing domestic energy production, indicating it will be the policy of the United States to encourage energy exploration and production. It is unknown whether and to what extent other new laws or regulations will be adopted by the second Trump administration, or the effect that any such actions would have on us or our industry. The charterers of our drilling rigs may be required to make significant capital expenditures to comply with governmental laws and regulations. It is also possible that these laws and regulations may in the future add significantly to the charterers of our drilling rigs’ operating costs or significantly limit drilling activity. In certain jurisdictions, there are or may be imposed restrictions or limitations on the operation of foreign flag vessels and rigs, and these restrictions may prevent us or our charterers from operating our assets as intended. We cannot guarantee that we or our charterers will be able to accommodate such restrictions or limitations, nor that we or our charterers can relocate the assets to other jurisdictions where such restrictions or limitations do not apply.
Currently, we own two drilling rigs, the 2014-built jack-up rig Linus and 2008-built semi-submersible drilling rig Hercules. In September 2022, Linus was redelivered from Seadrill Ltd. or Seadrill to us. Concurrently, the drilling contract of Linus with ConocoPhillips was assigned from Seadrill to us and we started earning drilling contract revenue directly from ConocoPhillips. Linus is under a long-term contract with ConocoPhillips in Norway until May 2029. The rig Hercules completed its drilling contract in Canada with Equinor Canada Ltd or Equinor, in the fourth quarter of 2024. After completion, Hercules was mobilized to Norway and pending new drilling contracts. In March 2026, the Company entered into a drilling contract in Canada with a large, investment-grade multinational oil and gas company for the harsh environment semi-submersible rig Hercules. The contract has an estimated value of approximately $170 million, a minimum term of approximately 400 days and is expected to commence in the first quarter of 2027. While we have been able to charter our jack-up rig and semi-submersible drilling rig, we may not be able to recharter them in the future.
For more information, please see “Item 5.D.—Trend Information”.
Downturns in these markets and resulting volatility has had a number of adverse consequences, including, among other things:
•an absence of financing for vessels or rigs;
•limited second-hand market for the sale of vessels or rigs;
•extremely low charter rates, particularly for vessels employed in the spot market;
•widespread loan covenant defaults in the shipping and offshore industries; and
•declaration of bankruptcy by some operators, rig and ship owners as well as charterers.
The occurrence of one or more of these events could adversely affect our business, results of operations, cash flows, financial condition and ability to pay cash distributions.
In addition, because the market value of our vessels and rigs may fluctuate significantly, we may incur losses when we sell vessels, which may adversely affect earnings. If we sell vessels at a time when vessel prices have fallen and before we have recorded an impairment adjustment to our financial statements, the sale may be at less than the vessel’s carrying amount in those financial statements, resulting in a loss and a reduction in earnings.
We are exposed to fluctuating demand and supply for maritime transportation services, as well as volatile prices of commodities (such as iron ore, coal, grain, soybeans and aggregates) and consumer and industrial products.
Our growth significantly depends on continued growth in worldwide and regional demand for the products we transport, such as dry bulk commodities (such as iron ore, coal, soybeans, etc.) and consumer and industrial products, which could be negatively affected by several factors, including declines in prices for such commodities and/or products, or general political, regulatory and economic conditions.
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In past years, China and India have had two of the world’s fastest growing economies in terms of gross domestic product and have been the main driving forces behind increases in shipping trade and the demand for marine transportation. While China in particular has enjoyed rates of economic growth significantly above the world average, slowing economic growth rates may reduce the country’s contribution to world trade growth, especially in view of deteriorating real estate property values. If economic growth declines in China, India and other countries in the Asia Pacific region, we may face decreases in shipping trade and demand. The level of imports to and exports from China may also be adversely affected by changes in political, economic and social conditions (including a slowing of economic growth) or other relevant policies of the Chinese government, such as changes in laws, regulations or export and import restrictions, internal political instability, changes in currency policies, changes in trade policies and territorial or trade disputes. Furthermore, a slowdown in the economies of the United States or the European Union, or certain other Asian countries may also have adverse impacts on economic growth in the Asia Pacific region. Therefore, a negative change in the economic conditions of any of these countries or elsewhere may reduce demand for dry bulk and/or containership vessels and their associated charter rates, which could have a material adverse effect on our business, financial condition and operating results, as well as our prospects.
Our business has inherent operational risks, which may not be adequately covered by insurance.
The operation of an ocean-going vessel carries inherent risks. Our vessels and their cargoes are at risk of being damaged or lost due to events such as marine disasters, bad weather, mechanical failures, human error, environmental accidents, war, terrorism, business interruptions caused by mechanical failures, grounding, fire, explosions, and collisions, piracy, political circumstances and hostilities in foreign countries, labor strikes and boycotts, and governmental expropriation of our vessels. Changing economic, regulatory and political conditions in some countries, including political and military conflicts, have from time to time resulted in attacks on vessels, mining of waterways, piracy, terrorism, labor strikes and boycotts. We may not be able to cover any of these events with insurance adequately which may result in loss of revenues, increased costs and decreased cash flows to our customers, which could impair their ability to make payments to us under our charters.
In the event of a vessel casualty or other catastrophic event, we will rely on the marine insurance policies to pay the insured value of the vessel or the damages incurred. Through the agreements with our vessel managers, we procure insurance for most of the vessels in our fleet employed under time and voyage charters against those risks that we believe the shipping industry commonly insures against. These include marine hull and machinery insurance, protection and indemnity insurance, which include pollution risks and crew insurances, and war risk insurance. Currently, the amount of coverage for liability for pollution, spillage and leakage available to us on commercially reasonable terms through protection and indemnity associations and providers of excess coverage is $1.0 billion per vessel per occurrence, except for certain excluded areas at high risk including Russia, Ukraine and Belarus.
There is no assurance that we will be adequately insured against all risks. Our vessel managers may not be able to obtain adequate insurance coverage at reasonable rates for our vessels in the future. For example, in the past more stringent environmental regulations have led to increased costs for, and in the future may result in the lack of availability of, insurance against risks of environmental damage or pollution. Additionally, our insurers may refuse to pay particular claims. For example, the circumstances of a spill, including non-compliance with environmental laws, could result in denial of coverage, protracted litigation, and delayed or diminished insurance recoveries or settlements. Any significant loss or liability for which we are not insured could have a material adverse effect on our financial condition. Under the terms of our bareboat charters, the charterer is responsible for procuring all insurances for the vessel.
We procure insurance for our fleet against risks commonly insured against by vessel owners and operators. Even if our insurance coverage is adequate to cover our losses, we may not be able to timely obtain a replacement vessel in the event of a loss. Furthermore, in the future, we may not be able to obtain adequate insurance coverage at reasonable rates for our fleet. We may also be subject to calls, or premiums, in amounts based not only on our own claim records but also the claim records of all other members of the protection and indemnity associations through which we receive indemnity insurance coverage for tort liability. Our insurance policies also contain deductibles, limitations and exclusions which, although we believe are standard in the shipping industry, may nevertheless increase our costs. If our insurance is not enough to cover claims that may arise, the deficiency may have a material adverse effect on our financial condition and results of operations. We may also be subject to calls, or premiums, in amounts based not only on our own claim records but also the claim records of all other members of the protection and indemnity associations through which we receive indemnity insurance coverage for tort liability, including pollution-related liability. Our payment of these calls could result in significant expenses to us.
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Acts of piracy and attacks on ocean-going vessels could adversely affect our business.
Acts of piracy and other attacks have historically affected ocean-going vessels trading in certain regions of the world, such as the South China Sea, the Arabian Sea, the Red Sea, the Gulf of Aden off the coast of Somalia, Sulu Sea, Celebes Sea, the Malacca and Singaporean Straits, the Indian Ocean, and, in particular, the Gulf of Guinea region off the coast of Nigeria, which has experienced a continuous high number of piracy incidents in recent years. We consider potential acts of piracy to be a material risk to the international shipping industry, and protection against this risk requires vigilance. Our vessels regularly travel through regions where pirates are active. We may not be adequately insured to cover losses from acts of terrorism, piracy, regional conflicts and other armed actions. Uninsured loss resulting from such actions could have a material adverse effect on our results of operations, financial condition and ability to pay dividends. Crew costs could also increase in such circumstances.
Maritime claimants could arrest or attach one or more of our vessels, which could interrupt our customers' or our cash flows.
Crew members, suppliers of goods and services to a vessel, shippers of cargo and other parties may be entitled to a maritime lien against a vessel for unsatisfied debts, claims or damages. In many jurisdictions, a maritime lien holder may enforce its lien by “arresting” or “attaching” a vessel through judicial or foreclosure proceedings. The arrest or attachment of one or more of our vessels, or vessels we may acquire, could interrupt the cash flow of the charterer and/or our cash flow and require us to pay a significant amount of money to have the arrest lifted, which would have an adverse effect on our financial condition and results of operations.
In addition, in jurisdictions where the “sister ship” theory of liability applies, such as South Africa, a claimant may arrest the vessel that is subject to the claimant's maritime lien and any “associated” vessel, which is any vessel owned or controlled by the same owner. In countries with “sister ship” liability laws, claims may be asserted against us or any of our vessels for liabilities of other vessels that we own.
Governments could requisition our vessels during a period of war or emergency, resulting in a loss of earnings.
A government of a vessel’s registry could requisition for title or hire or seize one or more of our vessels. Requisition for title occurs when a government takes control of a vessel and becomes the owner. Requisition for hire occurs when a government takes control of a vessel and effectively becomes the charterer at dictated charter rates. Generally, requisitions occur during a period of war or emergency. Even if we would be entitled to compensation in the event of a requisition of one or more of our vessels, the amount and timing of the payment would be uncertain. Lost revenue resulting from government requisition of our vessels could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends.
The aging of our fleet may result in increased operating costs or loss of hire in the future, which could adversely affect our earnings.
In general, the costs to maintain a vessel in good operating condition increase with the age of the vessel. As of December 31, 2025, the average age of our fleet, owned or leased by us, was approximately nine years. As our fleet ages, we will incur increased costs. Due to improvements in engine technology, as well as accumulated damage and wear, older vessels are typically less fuel-efficient and more costly to maintain newer vessels. Cargo insurance rates also increase with the age of a vessel, making older vessels less desirable to charterers.
Governmental safety, environmental regulations or other equipment standards related to the age of vessels may require expenditures for alterations or the addition of new equipment to our vessels to comply with safety or environmental laws or regulations. These laws or regulations may also restrict the type of activities in which our vessels may engage or prohibit operation in certain geographic regions. We cannot predict what alterations or modifications our vessels may be required to undergo as a result of requirements that may be promulgated in the future, or that as our vessels age market conditions will require expenditures to enable us to operate our vessels profitably during the remainder of their useful lives. If we do not set aside funds and are unable to borrow or raise funds for vessel replacement, we will be unable to replace the vessels in our fleet upon the expiration of their remaining useful lives. If we are unable to replace the vessels in our fleet upon the expiration of their useful lives, as a result, regulations and standards could increase our costs and have a material adverse effect on our business, financial condition, results of operations, cash flows and ability to pay dividends.
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There are risks associated with the purchase and operation of second-hand vessels.
Our current business strategy includes growth through the acquisition of both newbuildings and second-hand vessels. While we rigorously inspect previously owned or secondhand vessels prior to purchase, this does not normally provide us with the same knowledge about their condition and cost of any required (or anticipated) repairs that we would have had if these vessels had been built for and operated exclusively by us. A secondhand vessel may also have conditions or defects that we were not aware of when we bought the vessel and which may require us to incur costly repairs. These repairs may require us to put a vessel into drydock, which would reduce our fleet utilization and increase our operating costs. If a defect or problem is not detected, it may result in accidents or other incidents for which we may become liable to third parties. The market prices of secondhand vessels also tend to fluctuate with changes in charter rates and the cost of new build vessels, and if we sell the vessels, the sales prices may not equal and could be less than their carrying values at that time. Also, when purchasing previously owned vessels, we do not typically receive the benefit of warranties from the builders if the vessels we buy are older than one year. Therefore, costs associated with secondhand vessels can negatively affect our operating results.
Delays in the delivery of any newbuilding or secondhand vessels could harm our operating results.
Delays in the delivery of any new-building or second-hand vessels, would delay our receipt of revenues generated by these vessels and, to the extent we have arranged charter employment for these vessels, could possibly result in the cancellation of those charters, and therefore adversely affect our anticipated revenues. Although this would delay our funding requirements for the installment payments to purchase these vessels, it would also delay our receipt of revenues under any charters we arrange for such vessels. The delivery of newbuilding vessels could be delayed, other than at our request, because of, among other things, work stoppages or other labor disturbances; bankruptcy or other financial crisis of the shipyard building the vessel; hostilities, health pandemics or political or economic disturbances in the countries where the vessels are being built; weather interference or catastrophic event, such as a major earthquake, tsunami or fire; our requests for changes to the original vessel specifications; requests from our customers, with whom we have arranged any charters for such vessels, to delay construction and delivery of such vessels due to weak economic conditions and shipping demand and a dispute with the shipyard building the vessel.
In addition, the refund guarantors under the newbuilding contracts, which are banks, financial institutions and other credit agencies, may also be affected by financial market conditions in the same manner as our lenders and, as a result, may be unable or unwilling to meet their obligations under their refund guarantees. If the shipbuilders or refund guarantors are unable or unwilling to meet their obligations to the sellers of the vessels, this may impact our acquisition of vessels and may materially and adversely affect our operations and our obligations under our credit facilities. The delivery of any secondhand vessels could be delayed because of, among other things, hostilities or political disturbances, non-performance of the purchase agreement with respect to the vessels by the seller, our inability to obtain requisite permits, approvals or financing or damage to or destruction of the vessels while being operated by the seller prior to the delivery date.
Risks Relating to Our Company
Changes in our dividend policy could adversely affect holders of our common shares.
Any dividend that we declare is at the discretion of our board of directors of the Company, or the Board of Directors, and subject to the requirements of Bermuda law. We cannot assure you that our dividend will not be reduced or eliminated in the future, and changes in our dividend policy could adversely affect the market price of our common shares. Our profitability and corresponding ability to pay dividends is substantially affected by amounts we receive through charter hire and profit-sharing payments from our charterers. Our entitlement to profit sharing payments, if any, is based on the financial performance of our vessels which is outside of our control. If our charter hire and profit-sharing payments decrease substantially, we may not be able to continue to pay dividends at present levels, or at all. We are also subject to contractual limitations on our ability to pay dividends pursuant to certain debt agreements, and we may agree to additional limitations in the future. Additional factors that could affect our ability to pay dividends include statutory and contractual limitations on the ability of our subsidiaries to pay dividends to us, including under current or future debt arrangements, economic conditions, and macroeconomic impacts on our business and financial condition, such as inflationary pressure, and other factors the Board of Directors may deem relevant.
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We depend on our charterers for our operating cash flows and for our ability to pay dividends to our shareholders and repay our outstanding borrowings.
We own 15 container vessels on long-term time charters to Maersk A/S or Maersk, and multiple other assets chartered to a number of counterparties. We also partially own four container vessels on long-term bareboat charters to MSC Mediterranean Shipping Company S.A. and its affiliate Conglomerate Shipping Ltd. or MSC. Our other vessels that have charters attached to them are chartered to other customers under short-, medium- or long-term time charters.
The charter hire payments that we receive from our customers constitute substantially all of our operating cash flows. If any of our major counterparties, including Maersk, MSC or other customers, were to fail to perform their obligations, seek to renegotiate charter rates, refuse to pay charter hire, experience financial distress, declare bankruptcy or otherwise default under their charter agreements, we could experience a significant reduction or complete loss of revenue from the affected vessels.
The amount of fuel saving payment we receive under certain charters, if any, depends on prevailing fuel costs, which are volatile.
We installed exhaust gas cleaning equipment, or scrubbers, on seven of the containerships on charter to Maersk in return for receiving a share of the fuel savings expected to be achieved by the charterer, Maersk. Thus, as part of the charter agreements, we receive a share of the fuel savings, dependent on the price difference between IMO compliant fuel and IMO non-compliant fuel that is subsequently made compliant by the scrubbers. Additionally, we earn scrubber related fuel savings revenue in connection with a 4,900 CEU car carrier, Arabian Sea, on time charter with EUKOR Car Carriers Inc., or Eukor, which includes a similar share of the fuel savings in the charter agreement. For the year ended December 31, 2025, we recorded $5.0 million from fuel saving arrangements due to the installation of scrubbers, relating to the seven container vessels on charter to Maersk and one scrubber-fitted car carrier on charter to Eukor.
We cannot assure you that we will receive any fuel saving payments for any periods in the future, which may have an adverse effect on our results and financial condition and our ability to pay dividends in the future.
The charter-free market values of our vessels and drilling rigs may decrease, which could limit the amount of funds that we can borrow or trigger breaches in certain financial covenants in our current or future credit facilities and the exercise of purchase options held by the charterer could reduce the size of our fleet and reduce our future revenues.
We are generally prohibited from selling our vessels or drilling rigs during periods which they are subject to charters without the charterer's consent, and we may therefore be unable to take advantage of increases in vessel or drilling rig values during such times. Conversely, if the charterers were to default under the charters due to adverse market conditions, causing a termination of the charters, it is likely that the charter-free market value of our vessels and drilling rigs would also be depressed. The charter-free market values of our vessels and drilling rigs have experienced high volatility in recent years.
The charter-free market value of our vessels and drilling rigs may increase and decrease depending on a number of factors including, but not limited to, the prevailing level of charter rates and day rates, general economic and market conditions affecting the international shipping and offshore drilling industries, types, sizes, sophistication and ages of vessels and drilling rigs, supply and demand for vessels and drilling rigs, availability of or developments in other modes of transportation, competition from other shipping companies, cost of newbuildings, governmental or other regulations and technological advances in vessel design, capacity, propulsion technology and fuel consumption efficiency. We have granted fixed price purchase options to certain of our customers with respect to the vessels they have chartered from us, and these prices may be less than the respective vessel's charter-free market value at the time the option may be exercised. In addition, we may not be able to obtain a replacement vessel for the price at which we sell the vessel. In such a case, we could incur a loss and a reduction in earnings.
In addition, as vessels and drilling rigs grow older, they generally decline in value. If the charter-free market values of our vessels and drilling rigs decline, we may not be in compliance with certain provisions of our credit facilities and we may not be able to refinance our debt, obtain additional financing or make distributions to our shareholders. Additionally, if we sell one or more of our vessels or drilling rigs at a time when vessel and drilling rig prices have fallen and before we have recorded an impairment adjustment to our consolidated financial statements, the sale price may be less than the vessel's or drilling rig's carrying value on our consolidated financial statements, resulting in a loss and a reduction in earnings.
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Furthermore, if vessel and drilling rig values fall significantly, we may have to record an impairment adjustment in our financial statements, which could adversely affect our financial results and condition. Conversely, if vessel values are elevated at a time when we wish to acquire additional vessels, the cost of the acquisition may increase and this could adversely affect our business, results of operations, cash flow and financial position.
Volatility in the international shipping and offshore markets may cause our counterparties to fail to meet their obligations which could cause us to suffer losses and adversely affect our business.
From time to time, we enter into, among other things, charter parties with our customers, newbuilding contracts with shipyards, credit facilities with banks, guarantees, interest rate swap agreements, and currency swap agreements, total return bond swaps, and total return equity swaps. Such agreements subject us to counterparty risks. The ability and willingness of each of our counterparties to perform their obligations under a contract with us will depend on a number of factors that are beyond our control. As a result, our revenues and results of operations may be adversely affected. These factors include:
•global and regional economic and political conditions;
•supply and demand for oil and refined petroleum products, which is affected by, among other things, competition from alternative sources of energy;
•supply and demand for energy resources, commodities, semi-finished and finished consumer and industrial products;
•developments in international trade;
•changes in seaborne and other transportation patterns, including changes in the distances that cargoes are transported;
•environmental concerns and regulations;
•weather;
•the number of newbuilding deliveries;
•the improved fuel efficiency of newer vessels;
•the recycling rate of older vessels; and
•changes in production of crude oil, particularly by OPEC members and other key producers.
Tanker charter rates also tend to be subject to seasonal variations, with demand (and therefore charter rates) normally higher in winter months in the northern hemisphere.
In addition, in depressed market conditions, our charterers and customers may no longer need a vessel or drilling rig that is currently under charter or contract, or may be able to obtain a comparable vessel or drilling rig at a lower rate. As a result, charterers and customers may seek to renegotiate the terms of their existing charter parties and drilling contracts, or avoid their obligations under those contracts. Should a counterparty fail to honor its obligations under agreements with us, we could sustain significant losses which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Certain of our directors, executive officers and major shareholders may have interests that are different from the interests of our other shareholders.
C.K. Limited is the trustee of two trusts or the Trusts, that indirectly hold all of the common shares of Hemen, our largest shareholder. Accordingly, C.K. Limited, as trustee, may be deemed to beneficially own the 25,728,687 of our common shares, representing 17.8% of our outstanding shares that are owned by Hemen. Mr. Fredriksen established the Trusts for the benefit of his immediate family. Beneficiaries of the Trusts, which may include Ms. Fredriksen, do not have any absolute entitlement to the Trust assets and thus disclaim beneficial ownership of all of our common shares owned by Hemen. Mr. Fredriksen is neither a beneficiary nor a trustee of either Trust and has no economic interest in such common shares. He disclaims any control over and all beneficial ownership of such common shares, save for any indirect influence he may have with C.K. Limited, as the trustee of the Trusts, in his capacity as the settlor of the Trusts. Please see “Item 7. Major Shareholders and Related Party Transactions – A. Major Shareholders”.
For so long as Hemen beneficially owns a significant percentage of our outstanding common shares, it is able to exercise significant influence over us and will be able to strongly influence the outcome of shareholder votes on other matters, including the adoption or amendment of provisions in our articles of incorporation or bye-laws and approval of possible mergers, amalgamations, control transactions and other significant corporate transactions. This concentration of ownership may have the effect of delaying, deferring or preventing a change in control, merger, amalgamations, consolidation, takeover or other business combination. This concentration of ownership could also discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which could in turn have an adverse effect on the market price of our common shares. Hemen may not necessarily act in accordance with the best interests of other shareholders. The interests of Hemen may not coincide with the interests of other holders of our common shares. To the extent that conflicts of interests may arise, Hemen may vote in a manner adverse to us or to you or to other holders of our securities.
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Hemen is also a principal shareholder of a number of other large publicly traded companies involved in various sectors of the shipping and oil services industries , or the Hemen Related Companies. In addition, certain directors, including Mr. Cordia, Mr. O'Shaughnessy, Mr. Hjertaker, Mr. Homan-Russell, Ms. Kathrine Fredriksen and Mr. Jan Erik Klepsland, also serve on the boards of one or more of the Hemen Related Companies, including but not limited to Frontline plc (formerly Frontline Ltd.) (NYSE: FRO), or Frontline, Archer Limited (OSE: ARCHER) and NorAm Drilling Company AS, or NorAm Drilling. There may be real or apparent conflicts of interest with respect to matters affecting Hemen and other Hemen Related Companies whose interests in some circumstances may be adverse to our interests.
To the extent that we do business with or compete with other Hemen Related Companies for business opportunities, prospects or financial resources, or participate in ventures in which other Hemen Related Companies may participate, these directors and officers may face actual or apparent conflicts of interest in connection with decisions that could have different implications for us. These decisions may relate to corporate opportunities, corporate strategies, potential acquisitions of businesses, newbuilding acquisitions, inter-company agreements, the issuance or disposition of securities, the election of new or additional directors and other matters. Such potential conflicts may delay or limit the opportunities available to us, and it is possible that conflicts may be resolved in a manner adverse to us or result in agreements that are less favorable to us than terms that would be obtained in arm's-length negotiations with unrelated third-parties.
Hemen and its associated companies' business activities may conflict with our business activities and the agreements between us and affiliates of Hemen may be less favorable to us than agreements that we could obtain from unaffiliated third parties.
While Frontline, whose major shareholder is Hemen, has agreed to use its commercial best efforts to employ our vessels on market terms when managing our two tanker vessels in the spot market and not to give preferential treatment in the marketing of any other vessels owned or managed by Frontline or its other affiliates, it is possible that conflicts of interests in this regard will adversely affect us.
The charters, management agreements, charter ancillary agreements and the other contractual agreements we have with companies affiliated with Hemen were made in the context of an affiliated relationship. Although every effort was made to ensure that such agreements were made on an arm's-length basis, the negotiation of these agreements may have resulted in prices and other terms that are less favorable to us than terms we might have obtained in arm's-length negotiations with unaffiliated third parties for similar services.
Our shareholders must rely on us to enforce our rights against our contract counterparties.
Holders of our common shares and other securities have no direct right to enforce the obligations of related and non-related customers under the charters, or any of the other agreements to which we are a party. Accordingly, if any of those counterparties were to breach their obligations to us under any of these agreements, our shareholders would have to rely on us to pursue our remedies against those counterparties.
U.S. tax authorities could treat us as a "passive foreign investment company", which could have adverse U.S. federal income tax consequences to U.S. shareholders.
If the IRS were to find that we are or have been a “passive foreign investment company”, or PFIC, for any taxable year, our U.S. shareholders will face adverse U.S. federal income tax consequences. Under the PFIC rules, unless those shareholders make an election available under United States Internal Revenue Code of 1986, as amended, or the Code, such shareholders would be liable to pay U.S. federal income tax at the then prevailing income tax rates on ordinary income plus interest upon excess distributions and upon any gain from the disposition of our common shares, as if the excess distribution or gain had been recognized ratably over the shareholder's holding period of our common shares (see discussion below under "Taxation - U.S. Taxation – Passive Foreign Investment Company Status and Significant Tax Consequences").
We may have to pay tax on U.S. source income, which would reduce our earnings.
We believe that we and each of our subsidiaries qualified for a U.S. federal statutory tax exemption from U.S. federal income taxation on our U.S. source income for our taxable year ending on December 31, 2025 and we will take this position for U.S. federal income tax return reporting purposes. However, there are factual circumstances beyond our control that could cause us to lose the benefit of this tax exemption for future taxable years and thereby become subject to U.S. federal income tax on our U.S. source shipping income.
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If we or our subsidiaries, are not entitled to exemption under Section 883 of the Code for any taxable year, we, or our subsidiaries, could be subject during those years to an effective 2% U.S. federal income tax on gross shipping income. The imposition of this tax would have a negative effect on our business and would result in decreased earnings available for distribution to our shareholders (see discussion below under "Taxation - U.S. Taxation – Taxation of the Company’s Shipping Income: In General").
Changes in tax laws and unanticipated tax liabilities could materially and adversely affect the taxes we pay, results of operations and financial results.
From time to time, we are subject to income and other taxes in various jurisdictions, and our results of operations and financial results may be affected by tax and other initiatives around the world. For instance, there is a high level of uncertainty in today’s tax environment stemming from global initiatives put forth by the Organisation for Economic Co-operation and Development’s or OECD, two-pillar base erosion and profit shifting project. In October 2021, members of the OECD put forth two proposals: (i) Pillar One reallocates profit to the market jurisdictions where sales arise versus physical presence; and (ii) Pillar Two compels multinational corporations with €750 million or more in annual revenue to pay a global minimum tax of 15% on income received in each country in which they operate. The reforms aim to level the playing field between countries by discouraging them from reducing their corporate income taxes to attract foreign business investment. Over 140 countries agreed to enact the two-pillar solution to address the challenges arising from the digitalization of the economy and, in 2024, these guidelines were declared effective and must now be enacted by those OECD member countries. Qualifying international shipping income is currently exempt from many aspects of this framework if the exemption requirements are met. If we are in the scope of OECD’s Pillar Two rules, including due to our inability to satisfy the requirements of the international shipping exemption, these changes, when and if enacted and implemented by various countries in which we do business, could increase the burden and costs of our tax compliance, the amount of taxes we incur in those jurisdictions and our global effective tax rate, which could have a material adverse impact on our results of operations and financial results.
As an exempted company incorporated under Bermuda law, our operations may be subject to economic substance requirements.
The Economic Substance Act 2018 and the Economic Substance Regulations 2018 of Bermuda, or the Economic Substance Act and the Economic Substance Regulations, respectively) became operative on December 31, 2018. The Economic Substance Act applies to every registered entity in Bermuda that engages in a relevant activity and requires that every such entity shall maintain a substantial economic presence in Bermuda. Relevant activities for the purposes of the Economic Substance Act are banking business, insurance business, fund management business, financing and leasing business, headquarters business, shipping business, distribution and service center business, intellectual property holding business and conducting business as a holding entity.
The Bermuda Economic Substance Act provides that a registered entity that carries on a relevant activity complies with economic substance requirements if (a) it is directed and managed in Bermuda, (b) its core income-generating activities (as may be prescribed) are undertaken in Bermuda with respect to the relevant activity, (c) it maintains adequate physical presence in Bermuda, (d) it has adequate full time employees in Bermuda with suitable qualifications and (e) it incurs adequate operating expenditure in Bermuda in relation to the relevant activity.
A registered entity that carries on a relevant activity is obliged under the Bermuda Economic Substance Act to file a declaration in the prescribed form, or the Declaration, with the Registrar of Companies, or the Registrar, on an annual basis.
If we fail to comply with our obligations under the Bermuda Economic Substance Act or any similar law applicable to us in any other jurisdictions, we could be subject to financial penalties and spontaneous disclosure of information to foreign tax officials in related jurisdictions and may be struck from the register of companies in Bermuda or such other jurisdiction. Any of these actions could have a material adverse effect on our business, financial condition and results of operations.
If our long-term charters or management agreements relating to our vessels and rigs terminate, we could be exposed to increased volatility in our business and financial results, which could cause a decrease in revenues and increase in operating expenses.
If any of our charters terminate, we may be unable to re-charter the affected vessels on a long-term basis on terms comparable to our existing charters, or at all.
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The vessels in our fleet with attached charters are generally contracted for firm periods, together with certain optional extension periods. However, we have granted certain charterers purchase or early termination options which, if exercised, could result in earlier termination of the relevant charters. In addition, one or more charters may terminate upon a requisition for title or the total loss of a vessel. Any of these events could cause a significant decrease in revenues.
The technical and operational management agreements relating to our vessels and rigs are not fixed price arrangements and may be subject to cost increases. To the extent we acquire additional vessels or rigs, our cash flows may become more volatile and we may be exposed to increases in vessel and rig operating expenses, either of which could materially and adversely affect our business, financial condition and results of operations.
Certain of our vessels and drilling rigs are subject to purchase options held by the charterer of the vessel or drilling rig, which, if exercised, could reduce the size of our fleet and reduce our future revenues.
The charter-free market values of our vessels and drilling rigs are expected to change from time to time depending on a number of factors including general economic and market conditions affecting the shipping and offshore industries, competition, cost of vessel or drilling rig construction, governmental or other regulations, prevailing levels of charter rates and technological changes. We have granted fixed price purchase options to certain of our customers with respect to the vessels and drilling rigs they have chartered from us, and these prices may be less than the respective vessel's or drilling rig’s charter-free market value at the time the option may be exercised. In addition, we may not be able to obtain a replacement vessel or drilling rig for the price at which we sell the vessel or drilling rig. In such a case, we could incur a loss and a reduction in earnings.
Volatility of interest rate benchmarks under our financing agreements could affect our profitability, earnings and cash flow.
As certain of our current financing agreements have, and our future financing arrangements may have, floating interest rates, typically based on the SOFR movements in interest rates could negatively affect our financial performance. In order to manage our exposure to interest rate fluctuations under SOFR or any other variable interest rate, we have and may from time-to-time use interest rate derivatives to effectively fix some of our floating rate debt obligations. No assurance can be given that the use of these derivative instruments, if any, may effectively protect us from adverse interest rate movements. The use of interest rate derivatives may affect our results through mark to market valuation of these derivatives. Also, adverse movements in interest rate derivatives may require us to post cash as collateral, which may impact our free cash position. Volatility in applicable interest rates among our financing agreements presents a number of risks to our business, including potential increased borrowing costs for future financing agreements or unavailability of or difficulty in attaining financing, which could in turn have an adverse effect on our profitability, earnings and cash flow.
A change in interest rates could subject us to interest rate risk and materially and adversely affect our financial performance and financial position.
Some of our credit facilities use variable interest rates and expose us to interest rate risk. If interest rates increase and we are unable to effectively hedge our interest rate risk, our debt service obligations on the variable rate indebtedness would increase even if the amount borrowed remained the same, and our profitability and cash available for servicing our indebtedness would decrease.
As of December 31, 2025, we and our consolidated subsidiaries had $1.5 billion in floating rate bank borrowings, lease financing arrangements, and debt securities. Although we use interest rate and cross currency swaps to manage our interest rate exposure, we are exposed to fluctuations in interest rates. For a portion of our floating rate debt, if interest rates rise, interest payments on our floating rate debt that we have not swapped into effectively fixed rates would increase.
In order to manage our exposure to interest rate fluctuations under NIBOR, SOFR or any other alternative rate, we have and may from time to time use interest rate and cross currency derivatives to effectively fix some of our floating rate debt obligations.
As of December 31, 2025, we and our consolidated subsidiaries have entered into interest rate and cross currency swaps which fix the interest on $0.8 billion of our outstanding indebtedness.
An increase in interest rates could cause us to incur additional costs associated with our debt service, which may materially and adversely affect our results of operations.
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The interest rate and cross currency swaps that have been entered into by us and our subsidiaries are derivative financial instruments that effectively translate floating rate debt into fixed rate debt. U.S. GAAP requires that these derivatives be valued at current market prices in our financial statements, with increases or decreases in valuations reflected in results of operations or, if the instrument is designated as a hedge, in other comprehensive income. Changes in interest rates give rise to changes in the valuations of interest rate and cross currency swaps and could adversely affect results of operations and other comprehensive income.
Our liquidity may be affected during the period of the swap contracts arising from the requirement to pay collateral if current interest rates move significantly adversely compared to the swap interest rates. This could have a material adverse effect on our liquidity, depending on the magnitude of the fluctuation.
A change in foreign exchange rates could materially and adversely affect our financial position.
As of December 31, 2025, we held $74.3 million (U.S. dollar equivalent) in senior unsecured bonds denominated in Norwegian kroner, or NOK. Additionally we have swap arrangements directly related to these bonds with notional principal amounts of $69.4 million. Although the effect on profitability is managed through the use of currency swaps, liquidity may be affected during the period of the swap contracts arising from the requirement to pay collateral if the NOK currency rates move adversely compared to the U.S. dollar. This could have a material adverse effect on our liquidity, depending on the magnitude of the currency fluctuation.
We may have difficulty managing our planned growth properly.
Since our inception, we have expanded and diversified our fleet, and we are performing certain administrative services through our wholly-owned subsidiaries, SFL Management AS, SFL Management (Bermuda) Limited, SFL Management (Singapore) Pte. Ltd., LH Rig Management (Cyprus) Ltd and SFL UK Management Ltd.
We intend to continue to expand our fleet. We continuously evaluate potential transactions, which may include pursuit of other business combinations, the acquisition of vessels or related businesses, the expansion of our operations, repayment of existing debt, share repurchases, short-term investments or other transactions that we believe will be accretive to earnings, enhance shareholder value or are in our best interests. Our future growth will primarily depend on our ability to locate and acquire suitable assets or businesses, identify and consummate acquisitions or joint ventures, obtain required financing, integrate any acquired vessels and drilling rigs with our existing operations, enhance our customer base, and manage our expansion.
The growth in the size and diversity of our fleet will continue to impose additional responsibilities on our management, and may present numerous risks, such as undisclosed liabilities and obligations, difficulty in recruiting additional qualified personnel and managing relationships with customers and suppliers, and integrating newly acquired operations into existing infrastructures. We cannot assure you that we will be successful in executing our growth plans or that we will not incur significant expenses and losses in connection with our future growth.
We are highly leveraged and subject to restrictions in our financing agreements that impose constraints on our operating and financing flexibility.
We have significant indebtedness outstanding under our USD senior unsecured sustainability-linked bonds and our NOK senior unsecured bonds. We have also entered into loan facilities that we have used to refinance existing indebtedness and to acquire additional vessels. We may need to refinance some or all of our indebtedness on maturity of our bonds or loan facilities and to acquire additional vessels in the future. We cannot assure you that we will be able to do so on terms acceptable to us or at all. If we cannot refinance our indebtedness, we will have to dedicate some or all of our cash flows, and we may be required to sell some of our assets, to pay the principal and interest on our indebtedness. In such a case, we may not be able to pay dividends to our shareholders and may not be able to grow our fleet as planned. We may also incur additional debt in the future.
Our loan facilities and the indentures for our bonds subject us to limitations on our business and future financing activities, including:
•limitations on the incurrence of additional indebtedness, including issuance of additional guarantees;
•limitations on incurrence of liens;
•limitations on our ability to pay dividends and make other distributions; and
•limitations on our ability to renegotiate or amend our charters, management agreements and other material agreements.
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Further, our loan facilities contain financial covenants that require us to, among other things:
•provide additional security under the loan facility or prepay an amount of the loan facility as necessary to maintain the fair market value of our vessels securing the loan facility at not less than specified percentages (ranging from 100% to 125%) of the principal amount outstanding under the loan facility;
•maintain available cash on a consolidated basis of not less than $25 million;
•maintain positive working capital on a consolidated basis; and
•maintain a ratio of total liabilities to adjusted total assets of less than 0.80.
Under the terms of our loan facilities, we may not make distributions to our shareholders if we do not satisfy these covenants or receive waivers from the lenders. We cannot assure you that we will be able to satisfy these covenants in the future.
Due to these restrictions, we may need approval from our lenders in order to engage in some corporate actions. Our lenders' interests may be different from ours and we cannot guarantee that we will be able to obtain approval when needed. This may prevent us from taking actions that are in our best interests.
Our debt service obligations require us to dedicate a substantial portion of our cash flows from operations to required payments on indebtedness and could limit our ability to obtain additional financing, make capital expenditures and acquisitions, and carry out other general corporate activities in the future. These obligations may also limit our flexibility in planning for, or reacting to, changes in our business and the shipping industry or detract from our ability to successfully withstand a downturn in our business or the economy generally. This may place us at a competitive disadvantage to other less leveraged competitors.
Furthermore, our debt agreements, including our bond agreements, contain cross-default provisions that may be triggered by a default under one of our other debt agreements. The cross-default provisions imply that a failure by us as guarantor or issuer, to pay any financial indebtedness above certain thresholds when due, or within any applicable grace period, could result in a default under our other debt agreements.
The occurrence of any event of default, or our inability to obtain a waiver from our lenders in the event of a default, could result in certain or all of our indebtedness being accelerated or the foreclosure of the liens on our vessels by our lenders. 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 credit facilities 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 credit facilities 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 credit facilities. 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. Our lenders may also 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. See "Item 5. Operating and Financial Review and Prospects - B. Liquidity and Capital Resources".
In addition, under the terms of our credit facilities, our payment of dividends or other payments to shareholders as well as our subsidiaries’ payment of dividends to us is subject to no event of default having occurred. See “Item 8. Financial Information -Dividend Policy”.
We may be subject to litigation that, if not resolved in our favor and not sufficiently insured against, could have a material adverse effect on us.
We may be, from time to time, involved in various litigation matters. These matters may include, among other things, contract disputes, personal injury claims, environmental claims or proceedings, asbestos and other toxic tort claims, employment matters, governmental claims for taxes or duties, and other litigation that arises in the ordinary course of our business. Although we intend to defend these matters vigorously, we cannot predict with certainty the outcome or effect of any claim or other litigation matter, and the ultimate outcome of any litigation or the potential costs to resolve them may have a material adverse effect on us. Insurance may not be applicable or sufficient in all cases and/or insurers may not remain solvent, which may have a material adverse effect on our financial condition.
For a description of our current legal proceedings, please see “Item 8.A. - Legal Proceedings”.
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Risks Relating to Our Common Shares
We are a holding company and depend on the ability of our subsidiaries to distribute funds to us in order to satisfy our financial obligations.
We are a holding company, and our subsidiaries conduct all of our operations and own all of our operating assets. We have no significant assets other than the equity interests in our subsidiaries. Our subsidiaries own all of our vessels and drilling rigs, and payments under our charter agreements are made to our subsidiaries. As a result, our ability to make distributions to our shareholders depends on the performance of our subsidiaries and their ability to distribute funds to us. The ability of a subsidiary to make these distributions could be affected by a claim or other action by a third party or by the law of its respective jurisdiction of incorporation which regulates the payment of dividends by companies. Under the terms of our credit facilities, we may be restricted from making distributions from our subsidiaries if they are not in compliance with the terms of the relevant agreements. If we are unable to obtain funds from our subsidiaries, we may not be able to pay dividends to our shareholders.
The market price of our common shares may be unpredictable and volatile, and future sales of our common shares could cause the market price of our common shares to decline.
The market price of our common shares has been volatile. For the year ended December 31, 2025, the closing market price of our common shares ranged from a high of $11.12 on January 15, 2025, to a low of $6.84 on October 21, 2025. The market price of our common shares may continue to fluctuate due to factors such as actual or anticipated fluctuations in our quarterly and annual results and those of other public companies in our industry, changes in key management personnel, any reductions in the payment of our dividends or changes in our dividend policy, mergers and strategic alliances in the shipping and offshore industries, market conditions in the shipping and offshore industries, changes in government regulation, shortfalls in our operating results from levels forecast by securities analysts, perceived or actual inability by our chartering counterparts to fully perform under the charter parties, including the charterers of our drilling rigs and third party announcements concerning us or our competitors and the general state of the securities market. The shipping and offshore industries have been highly unpredictable and volatile. The market for common shares in these industries may be equally volatile. The market volatility in equities remains high. In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against companies. Such litigation, if instituted against us, could result in substantial costs and diversion of management’s attention and resources, which could materially and adversely affect our business, financial condition, results of operations and growth prospects. Therefore, we cannot assure you that you will be able to sell any of our common shares you may have purchased at a price greater than or equal to its original purchase price, also when adjusted for any dividends. Additionally, to the extent that the price of our common shares declines, our ability to raise funds through the issuance of equity, or otherwise using our common shares as consideration, will be reduced.
Additionally, securities of certain companies might experience significant and extreme volatility in stock price due to short sellers of shares of common stock, known as a “short squeeze”. These short squeezes have caused extreme volatility in those companies and in the market and have led to the price per share of those companies to trade at a significantly inflated rate that is disconnected from the underlying value of the company. Many investors who have purchased shares in those companies at an inflated rate face the risk of losing a significant portion of their original investment as the price per share has declined steadily as interest in those stocks has abated. While we have no reason to believe our shares would be the target of a short squeeze, there can be no assurance that we will not be in the future, and you may lose a significant portion or all of your investment if you purchase our shares at a rate that is significantly disconnected from our underlying value.
The market price of our common shares could decline due to sales of a large number of our shares in the market or the perception that such sales could occur. This could depress the market price of our common shares and make it more difficult for us to sell equity securities in the future at a time and price that we deem appropriate, or at all.
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Worldwide inflationary pressures could negatively impact our results of operations and cash flows.
It has been recently observed that worldwide economies have experienced inflationary pressures, with price increases seen across many sectors globally. For example, the U.S. consumer price index, an inflation gauge that measures costs across dozens of items, rose 2.7% in 2025 compared to the prior year, driven in large part by rising shelter costs. It remains to be seen whether inflationary pressures will continue, and to what degree, as central banks begin to respond to price increases. In the event that inflation becomes a significant factor in the global economy generally and in the shipping industry more specifically, inflationary pressures would result in increased operating, voyage and administrative costs. Furthermore, the effects of inflation on the supply and demand of the products we transport could alter demand for our services. Interventions in the economy by central banks in response to inflationary pressures may slow down economic activity, including by altering consumer purchasing habits and reducing demand for the commodities and products we carry, and cause a reduction in trade. As a result, the volumes of goods we deliver and/or charter rates for our vessels may be affected. Any of these factors could have an adverse effect on our business, financial condition, cash flows and operating results.
Because we are a foreign corporation, you may not have the same rights as a shareholder in a U.S. corporation may have.
We are a Bermuda exempted company. Our Memorandum of Association and Bye-Laws and the Bermuda Companies Act 1981, as amended, govern our affairs. Investors may have more difficulty in protecting their interests and enforcing judgments in the face of actions by our management, directors or controlling shareholders than would shareholders of a corporation incorporated in a U.S. jurisdiction. Under Bermuda law, a director generally owes a fiduciary duty only to us and not to our shareholders. Our shareholders may not have a direct course of action against our directors. In addition, Bermuda law does not provide a mechanism for our shareholders to bring a class action lawsuit under Bermuda law. Further, our Bye-laws provide for the indemnification of our directors or officers against any liability arising out of any act or omission except for an act or omission constituting fraud, dishonesty or illegality.
As a foreign private issuer, we are permitted, and intend, to follow certain home country corporate governance practices instead of otherwise applicable NYSE requirements, which may result in less protection than is accorded to investors under rules applicable to U.S. domestic issuers.
As a foreign private issuer, in reliance on New York Stock Exchange, or NYSE, rules that permit a foreign private issuer to follow the corporate governance practices of its home country, we are permitted to follow certain Bermuda home corporate governance practices instead of those otherwise required under the corporate governance standards for U.S. domestic issuers. We follow certain Bermuda home country corporate governance practices rather than the requirements of the NYSE. Following our home country governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on the NYSE may provide less protection than is accorded to investors in U.S. domestic issuers. For a listing and further discussion of how our corporate governance practices differ from those required of U.S. companies listed on the NYSE, please see "Item 16G. Corporate Governance" or visit the corporate governance section of our website at www.sflcorp.com. The information on our website is not incorporated by reference into this annual report.
Because our offices and most of our assets are outside the United States, you may not be able to bring suit against us, or enforce a judgment obtained against us in the United States.
Our executive offices, administrative activities and the majority of our assets are located outside the United States. In addition, most of our directors and officers are not U.S. residents. As a result, it may be more difficult for investors to effect service of process within the United States upon us, or to enforce both in the United States and outside the U.S. judgments against us in any action, including actions predicated upon the civil liability provisions of the U.S. federal securities laws.
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