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    d816580_corresp.htm

               October
                5, 2007

    Mr.
      Michael Fay

    Division
      of Corporation Finance

    Securities
      and Exchange Commission

    One
      Station Place

    100
      F Street, N.E.

    Washington,
      D.C. 20549-7010

              Re:

              Ship
                Finance International Limited

              File
                No. 001-32199

              Form
                20-F: For the year ended December 31,
                2006

    Dear
      Mr. Fay:

    By
      letter dated August 24, 2007, the Staff of the Securities and Exchange
      Commission (the “Staff”) presented comments to the Annual Report on Form 20-F
      (the “Form 20-F”) filed by Ship Finance International Limited (“SFIL” or the
“Company”) with respect to the year ending December 31, 2006.  On
      behalf of the Company, we hereby submit the Company’s response to your
      letter.  For your convenience, the numbered paragraphs of this
      response letter correspond to the numbered paragraphs of your letter, which
      we
      have inserted in bold.

    By
      way of background, SFIL was incorporated as a wholly-owned subsidiary of
      Frontline Ltd (“Frontline”) (NYSE:  FRO) in 2003.  In
      December 2003, SFIL purchased a fleet of 47 crude oil tankers from Frontline
      and
      leased those vessels back to Frontline under time charter agreements with terms
      commencing in 2004.  In May 2004, Frontline distributed 25 percent of
      SFIL’s common shares to its ordinary shareholders, and SFIL started trading on
      the New York Stock Exchange in June 2004.  For all the years included
      in the Form 20-F, SFIL was consolidated by Frontline.

    Item
      5. Operating and Financial Review and prospects -
      Overview

    Revenues

              1.

              We
                note that you allocate $6,500 per day from each time charter payment
                from
                Frontline Charterers as finance lease service revenue generated by
                your
                vessels.  Please tell us the reason that this amount is
                disaggregated and recorded as revenue prior to allocating the charter
                payments (received) between finance lease interest income and finance
                lease repayment.  Please cite any accounting literature that you
                believe
                supports your accounting treatment.  As a part of your response,
                please describe the nature of the separate services that you provide
                which
                result in the recognition of finance lease service
                revenue.

        Mr.
          Michael Fay
          Securities
            and Exchange Commission

          Page 2

    Under
      the time charter agreements, SFIL is responsible for providing Frontline
      Charterers with vessel management services for the leased vessels,
      including:

              ●

              Provision
                of crew of the vessels;

              ●

              Provision
                of maintenance and restoration of the vessels as and when
                required;

              ●

              Arrangement
                and supervision of necessary dry dockings;

              ●

              Arrangement
                and provision of necessary stores, spares, and lubes;

              ●

              Any
                other technical requirements for the vessels to maintain compliance
                with
                the charters; and

              ●

              Provision
                of appropriate insurance for the
                vessels.

    SFIL
      has contracted with Frontline Management (Bermuda) Ltd. (“FMB”) under management
      agreements (the “Management Agreements”) for the provision of the vessel
      management services in respect of each of the vessels leased to Frontline
      Charterers. FMB is a 100 percent owned subsidiary of Frontline. The Company
      pays
      FMB a fixed fee of $6,500 per day per vessel to provide such
      services.

    Using
      the guidance contained in EITF Issue No. 00-21, “Revenue Arrangements with
      Multiple Deliverables,” we have concluded that we provide two distinct
      deliverables under the arrangement with Frontline:

              1.

              The
                provision of the leased asset (the vessel); and

              2.

              The
                provision of management services in respect of the
                vessel.

    Consequently,
      the Company has concluded that the total receipts under the arrangement should
      be allocated between the provision of the vessel and the related management
      services.

    We
      note under the provisions of paragraph 4 of EITF 00-21, payments for lease
      and
      non-lease deliverables should be allocated based on the relative fair value
      of
      the lease and non-lease deliverables. However, as SFIL and Frontline were under
      common control during this time period, we concluded the appropriate accounting
      was to recognize the management services revenue at the amounts stated in the
      Management Agreements ($6,500 per day per vessel) and to disclose this related
      party transaction as required by FASB Statement No. 57, Related Party
      Transactions.  As stated above, the Company pays FMB $6,500 per
      day per vessel to provide such services.  We note that SFIL time
      charters the vessels to Frontline Charterers.  The provision of the
      services set forth above is a necessary part of the time
      charters.  There is no separate contract by which SFIL provides any
      management services to Frontline Charterers.  SFIL has direct
      contracts with FMB to provide those services to SFIL.

        Mr.
          Michael Fay
          Securities
            and Exchange Commission

          Page
            3

              2.

              We
                note that you have cancelled certain charters with Frontline and
                agreed to
                pay compensation to them as a result.  Please tell us the type
                of leases you cancelled (sales-type, direct financing or operating),
                whether your lease arrangements provided for such compensation, how
                amounts were determined, and how you accounted for the
                compensations.

    The
      Company has classified all of the leases with Frontline as sales-type leases
      (Please see the response to comment 8 below for further explanation of the
      lease
      classification).

    In
      the absence of any specific early termination clauses within the lease
      agreements, each cancellation and compensation agreement has been agreed with
      Frontline as a result of separate negotiations at the time of termination of
      the
      lease. In our determination of a fair compensation we have generally based
      our
      calculations on the market value of a charter-free vessel, and compared this
      to
      the discounted cash flows from the specific Frontline lease and an assessment
      of
      the estimated residual value for such vessel.

    All
      termination compensation payments have been recognized in full, in the
      consolidated statements of operations  at the time of cancellation of
      the Frontline leases and delivery of the vessels to the new owners under the
      caption Profit / (loss) on sale of assets. All termination payments are
      disclosed in note 17 to the Company’s consolidated financial statements,
Related party transactions.

    Critical
      Accounting Policies and estimates - Revenue
      Recognition

              3.

              We
                note that 48 of your company’s vessel charters were accounted for as
                sales-type leases as of December 31, 2006.  We also note that a)
                the estimated un-guaranteed residual value accruing to the benefit
                of the
                lessor and b) the implicit interest rate (of your leases), which
                is
                applied to determine the present value of both the minimum lease
                payments
                and the un-guaranteed residual value of your sales-type leases, are
                important estimates when determining the amount of unearned income
                that
                should be recorded under sales-type leases.  Due to i) the
                significance of the aforementioned estimates to the amount of income
                that
                will ultimately be recognized under your sales-type leases and ii)
                the
                degree of judgment and subjectivity involved with making such estimates,
                please tell us and expand your discussion of revenue recognition
                in the
                “Critical Accounting Policies and Estimates” section of MD&A to
                disclose information including, but not limited to, the
                following:

              ▪

              The
                manner in which management determines the un-guaranteed residual
                value of
                assets leased under sales-type leases.

              ▪

              The
                manner in which management determines the implicit interest rate
                which is
                applied to determine the present value of both the minimum lease
                payments
                and the un-guaranteed residual value associated with your sales-type
                leases.

          Mr.
            Michael Fay

          Securities
            and Exchange Commission

          Page
            4

              ▪

              How
                accurate your estimates of the un-guaranteed residual value of your
                leased
                assets have been in the past.

              ▪

              Whether
                your estimates and assumptions have changed in the past and/or likely
                to
                change in the future.

              ▪

              The
                reason (s) there is uncertainty attached to your estimates and
                assumptions.

    Refer
      to the “Commission Guidance Regarding Management’s Discussion and Analysis of
      Financial Condition and Results of Operations” (FR-72) for further
      guidance.

    The
      Company notes the Staff’s comments and advises the Staff that it intends to
      expand its discussion under Critical Accounting Policies and Estimates
      in future filings, to include the following information:

              ●

              There
                is a degree of uncertainty involved in the estimation of the un-guaranteed
                residual values of SFIL’s assets leased under sales-type and direct
                finance leases. Global effects of supply and demand for oil, and
                changes
                in international government regulations cause volatility in the spot
                market for used vessels. Where assets are held until the end of their
                useful lives, the un-guaranteed residual value (scrap value) will
                fluctuate with the price of steel and any changes in laws related
                to the
                ship scrapping process, commonly known as ship
                breaking.

              ●

              The
                Company estimates the un-guaranteed residual value of its assets
                at the
                end of the leases by calculating depreciation in accordance with
                its
                accounting policies over the estimated useful life of the asset.
                Discussion of the Company’s policy on depreciation is expanded under point
                12 below.

              ●

              Residual
                values are reviewed at least annually to assure that original estimates
                remain appropriate. To date, SFIL has not changed its original estimates;
                however it is possible that future events and circumstances could
                cause us
                to change our estimates.

              ●

              The
                implicit rate of return for each of the Company’s leases is derived,
                according to FASB 13 paragraph 5k, from the fair value of the asset
                at the
                lease inception (which is either the cost of the asset if acquired
                from an
                unrelated third party, or independent valuation if acquired from
                a related
                party), the minimum contractual lease payments and the estimated
                residual
                values.

    The
      Company advises the Staff supplementally that it has considered the question
      of
      how accurate its estimates have proved in the past. None of the leases has
      run
      to term.  Accordingly, the Company does not have sufficient experience
      to date to comment on the accuracy of its estimates of the un-guaranteed
      residual values of its leased assets.  The Company expects to continue
      monitoring this issue, and will provide appropriate disclosure when the basis
      for such disclosure is available.

          Mr.
            Michael Fay

          Securities
            and Exchange Commission

          Page 5

    Results
      of Operations

              4.

              We
                note that your reported profit-sharing revenue decreased significantly
                in
                fiscal years 2005 and 2006, despite an increase in the number of
                vessels
                that have transitioned into operation under their charter agreements
                with
                Frontline Charterers.  You have attributed the decline in profit
                sharing revenue to the decrease in average TCE revenue earned by
                your
                vessels while employed by Frontline Charterers.  To the extent
                known, please tell us and expand your discussion in MD&A to discuss
                the underlying factors which have resulted in the decline in TCE
                revenue
                earned by your vessels that are employed by Frontline
                Charterers.

    As
      discussed in the Form 20-F, profit sharing revenue is calculated as 20 percent
      of Frontline Charterers’ annual time charter equivalent, or TCE, earnings in
      excess of the daily base charter rate paid to SFIL for lease of its
      vessels.  Total TCE earnings are calculated as the sum of Frontline
      Charterers’ time charter, voyage charter and bareboat charter revenues, less
      voyage expenses for the vessels under lease from the
      Company.  Frontline Charterers’ charter revenues were stable between
      2005 and 2006.  However, voyage expenses, which offset revenues in the
      calculation of TCE earnings, increased between 2005 and 2006, primarily due
      to
      increased fuel prices.

    In
      addition, during 2005, a number of Suezmax vessels were sold and the leases
      with
      Frontline Charterers cancelled.  These vessels were replaced with
      VLCCs, which have a higher daily base charter rate than the
      Suezmaxes.  Because of the higher daily base rate, for a given level
      of earnings, a fleet with more VLCCs earns lower profit sharing
      revenues.

    The
      Company intends to expand its discussion of profit sharing revenues in the
      MD&A accordingly.

    Financial
      Statements - Consolidated Balance Sheets

              5.

              You
                state in the section of your Form 20-F titled “Risks re