Q2 2024 FLEX LNG Ltd Earnings Call

August 14, 2024

Fixed one chip on a 10-month charter. So we had some of you might recall, we had Flex Constellation being re-delivered back from our three-year-from charter. End of Q1 last year. And we then decided to take you in dock early, as this is our low period of the market. We completed the dock in according to plan and budget and took you back in the market in the middle of April where we traded our spot for a while. We managed to get our cool down slots so we could get the chip back in cool condition. And then after our spot voyage we fixed on this 10-month charter with a large LNG buyer. Where the re-delivered end is end of Q1. 2025, but where the charter has the option to extend this time charter by one year to 2026. So that means we are fully covered, 100% charter cover for the remainder of the year, also a very high coverage going forward. So I will touch upon a bit later in the presentation.

got a ticket on our 10-month charter so we had, as some of you may remember, Flex Constellation which was redelivered from our three-year charter, end of Q1 last year and we decided to take her into the dock early because it is a low period in the market. We completed the docking according to plan and budget and brought her back to the market in mid-April when we were dealing with her market for a while. We managed to get the cooling level back so we could get the cooling level back in cold conditions and then after our marketing we fixed her on this 10-month charter with a major Norwegian LNG buyer where the redelivery is end of Q1 2025 but where the charterer has the option to extend the time charter by one year to 2026. This means that we are fully open, 100% open charter for the rest of the year, also very high openings going forward which I will also look at a bit later in the presentation.

Fix one chip on a 10-month charter. So we had, as some of you might recall, we had Flex Constellation being re-delivered back from our three-year firm charter at the end of Q1 last year. And we then decided to take her in dock early as this is a low period of the market. We completed the dock according to plan and budget and took her back in the market in the middle of April where we traded her spot for a while. We managed to get a cool down slot so we could get the chip back in cool condition. And then after our spot voyage, we fixed her on this 10-month charter with a large Asian LNG buyer where the re-delivery then is end of Q1 2025, but where the charter has the option to extend this time charter by one year to 2026. So that means we are fully covered, 100% charter cover for the remainder of the year, also a very high coverage going forward as I also will touch upon a bit later in the presentation.

Fixed one ship on a 10 month charter. So we had some of you might recall, we had Flex Constellation being redeveloped back from our three year from charter, and docked one last year. And we then decided to take you in dock early as this is a low period of the market. We completed the dock according to plan and budget and took her back in the market in the middle of April where we traded her spot for a while. We managed to get our cool down slots so we could get the ship back in cool condition. And then after our spot voyage we fixed on this 10 month charter with a large LNG buyer where the redelever then is end of Q1. 2025 but where the charter has the option to extend this time charter by one year to 2026. So that means we are fully covered, 100% charter cover for the remainder of the year. Also a very high coverage going forward as I also will touch upon a bit later in the presentation. We as some of you also recall we have been doing an extensive balance sheet optimization phase for some time and we had one phase where aim was 100 million. We did our balance sheet optimization 2.0 and then 2.1 and correct me from mistaken news. I think we raised 387 million dollars on those refinancing and we actually have a very good financing situation but you know we are not idling because of good financial structure we try to optimize and find better terms. As I said in the Q1 presentation we had an extension of flex and devour from 2030 to 2032 and with that attractive backlog on that ship we were able to secure a very attractive Japanese operating list on that company and we also amended our bank loan and we have thus secured 430 million of new financing with a net proceeds from this financing of 97 million dollars which will tell you more about. During this quarter Q2 is more or less always the softest quarter we try to plan or dry dockings during this quarter so we had flex consolation as I mentioned in dock and flex co-rages also taken out from a TC out of operation in dock and backed on TC. Both ships were done at 17 days each 3 days below our guidance of 20 days cost of docking around 5 million dollars according also to our budget. That means we do expect revenues and earnings to pick up in Q3 we have all the ships back in operation 2 ships were out of the market for some time in Q2 so with all ships back in operation some of our better spot market affecting the one ship on variable higher we do expect revenues to pick up to around 90 million dollars time-shutter equivalent earnings also to increase a bit and the same then goes with EBTIS most of our costs are fixed in the short term. So with our very healthy backlog which I will touch upon very strong financial position good outlook. Once again we are declaring 75 cents of quarterly dividend. Dividend last 12 months is 3 dollars 12.5 cents per share

10 months charter. So we have that some of you might recall, we have flex constellation being redelivered back from our P. F M charter.

one ship on a 10-month charter.

So we had, as some of you might recall, we had Flex Constellation being re-delivered back from our 3-year firm Charter.

End of Q1 last year.

and we then decided to take her in dock early.

as this is our law.

In this period of the market, we completed a dock according to plan and budget.

and took her back in the market in the middle of April where we traded her spot for a while. We managed to get a cool down slot so we could get the ship back in cool condition.

and then after a spot voyage we fixed her on this 10-month charter with a large Asian LNG buyer where the re-delivery then is end of Q1 2025 but where the charter has the option to extend this

time charter by one year to 2026. So that means we are fully covered 100% charter cover for the remainder of the year. Also a very high coverage going forward as I also will touch upon a bit later in the presentation.

As some of you also recall, we have been doing an extensive balance sheet optimization phase for some time.

we had one phase where aim was 100 million we did our balance sheet optimization 2.0 and then 2.1

And correct me if I'm mistaken, Knut, I think we raised $387 million on those.

Knut: refinancing and we actually have a very good financing situation but

Knut: You know, we are not idling because of good financial structure. We try to optimize and find better terms.

Speaker Change: As I said in the Q1 presentation, we had an extension of Flex Endeavor from 2030 to 2032.

Speaker Change: And with that attractive backlog on that ship, we were able to secure a very attractive Japanese operating lease on that company. And we also amended our bank loan and we...

Speaker Change: have thus secured $430 million of new financing with a net proceeds from this financing of $97 million, which...

Knut: Knut will tell you more about.

Knut: During this quarter, Q2 is more or less always the softest quarter we try to plan or dry dockings during this quarter.

Knut: So we had FLEX Constellation, as I mentioned, in dock and FLEX Courageous also taken out from a TC, out of operation in dock and back on TC. Both ships were done at 17 days each, three days below our guidance of 20 days.

Speaker Change: Cost of docking around 5 million dollars according also to our budget.

Speaker Change: That means we do expect revenues and earnings to pick up in Q3. We have all the ships back in operation. Two ships were out of the market.

Speaker Change: for some time in Q2. So with all ships back in operation, somewhat better.

Speaker Change: marketplaces that affect the valuation height of one car. We expect growth to increase up to around 90 million dollars. The similar benefits of the timeline should also increase slightly and the same happens with Ebitda since most of our costs are fixed in the short term.

Speaker Change: So, with a very healthy backlog, which I will touch upon, very strong financial position, good outlook. Once again, we are declaring $0.75 of quarterly dividend. Dividend last 12 months is $3.125 per share, implying a running yield of around 12%.

So, just a reminder here on the guidance, we guided between 70-75,000 on the TCR, it delivered in the middle of that, we delivered spot on the revenues, we said close to 85 million, 84.7 million is as close as you get to 85 million, and then adjusted EBDA. We said close to 65, 63.2, a bit lower because OPEX is slightly higher in Q2 than Q1 due to timing effects that Knut will tell you more about. And then as I said, we expect higher revenues and earnings for Q3 and probably usually Q4 is the strongest quarter for us, we have one chip on index linked to the spot market and Q4 tend to be the high season in the spot market. As mentioned, the dry dockings we had scheduled for this quarter was completed according to both plan and budget. I mentioned the backlog, so there's been one change from all recently, we have some chips that are on very long duration charters, FlexRain both, 23rd and 33rd, we recently extended FlexRain ever from 23rd to 23rd and 32rd, the charter has the option to extend to 23rd and we used life that kind of added backlog on that chip to refinance the chip on battle terms. Vigilent, we are last year extended to 23rd and 31, what the option is to 23rd and then we have two ships to 29, we have the Flex Freedom to 27 with option 29. Resolute and courageous, we announced in Q1 that those two ships were extended from 25 to 27 as expectation and we do expect these ships also to be declared until 29. Due to the contract structure of these ships where you have a front loaded firm rate compared to the option rate which we will also find more details about inner earnings report where the remaining ships in a portfolio have a higher, about 18% higher option rate that this does not apply for. These two ships and it has a bit revenue recognition effect although not a cash flow effect. Flex Voluntary Aurora 2026 with option 28, then we have FlexRanger or Fully Open 27 and then as I mentioned Constellation, FixNo until Q1, 25 where the charter has the option to keep on until the end of Q1, 26. So that's our first Fully Open ship with Ranger coming back of that in 27 and then we have some ships in 28, 29, which we think is a very good window of having ships open for reasons I will explain a bit later in the presentation. Then the last ship Flex Artemis is on a variable higher index charter where it's linked to the spot market where typically revenues are highest in Q4 and then Q1, Q3 tend to be a bit similar in Q2 being the softest quarter. Here the charter has option to keep that ship until 23. So with the healthy backlog high level of income visibility for the seven years of firm backlog which may grow to 66 years, we have a fairly predictable cash flow. Last three years now we payed out 528 million dollars of dividends consisting of the ordinary dividend 75 cents per quarter plus some special dividends in the past with topping those dividends.

Speaker Change: So, just a reminder here on the guidance, we guided between 70-75 cents.

Speaker Change: Thousand on the TC rate delivered in the middle of that.

Speaker Change: where they leave a spot on the revenues we said close to 85 million 84.7 million is as close as you get to 85 million

Speaker Change: and then I adjusted the EBITDA close to 65, 63.2 a bit lower because OPEX is slightly higher in Q2 than Q1 due to timing effects that Knut will tell you more about and then, as I said

Speaker Change: We expect higher revenues and earnings for Q3, and probably, you know, usually Q4 is the strongest quarter for us. We have one chip on index linked to the spot market, and Q4 tends to be the high season in the spot market. As mentioned, the dry dockings we had scheduled for this quarter were

Speaker Change: Completed according to both plan and budget.

Speaker Change: I mentioned the backlog, so there's been one change from...

Speaker Change: or recently, you know, we have some ships that are on very long duration charters, Flex Rainbow, 2033. We recently extended Flex Endeavor from 2030 to 2032, with the option.

Speaker Change: The charter has the option to extend to 2033 and we utilize that kind of added backlog on that ship to refinance the ship on better terms. Vigilant we last year extended to 2031 where the option is to 2033 and then we have

Speaker Change: Two ships to 29, we have Deflect Freedom to 27 with option 29, Resolute and Courageous we announced in Q1 that those two ships were extended from 25 to 27 as expectation and we do expect these ships also to be declared until 29.

Speaker Change: due to the contract structure of this

Speaker Change: chips where you have a front-loaded firmware it compared to the

Speaker Change: option rate, which you will also find more details about in our earnings report where the remaining chips in our portfolio have a higher, about 18% higher option rate. This doesn't apply for these two chips and it has a bit revenue recognition effect, although not a cash flow effect.

Speaker Change: FAMP.

Speaker Change: Flex Volunteer Aurora 2026 with option to 28 Then we have Flex Ranger fully open 27 And then as I mentioned Constellation fixed now until end of Q1 2025 where the charter has the option to keep until end of Q1 2026 So that's our first fully open ship

Speaker Change: with Ranger coming back of that in 27, and we have some ships in 28, 29, which we think is a very good wind of having ships open for instance, I will explain a bit later in post-intention.

Speaker Change: Revenues are highest in Q4 and Q1, Q3 seems somewhat similar with Q2 being the softest quarter. Here, Chala has an opportunity to hold the chip until 2030.

Speaker Change: So with the healthy backlog, a high level of income visibility

Speaker Change: 47 years of firm backlog, which may grow to 66 years. We have a fairly predictable cash flow.

Speaker Change: Last three years now we've paid out 528 million dollars of dividends consisting of the ordinary dividend 75 cents per quarter plus some special dividends in the past. We're topping those dividends up.

Kalleklev, Knut Traaholt, Flex LNG, Flex LNG Flex LNG Kalleklev, Knut Traaholt, Flex LNG Revenues for the quarter came in at 84.7 million, slightly down from the first quarter, but as explained by Oystein, this is due to the seasonal lower period, impacting the variable higher contract for Flex Artemis and also the spot operations for Flex Constellation. In addition, we had a few operating days as we had a number of ships in dry docking, reduced resulting in off-fire. That returns into a time-child equivalent per day of 72,400, and if you look at the vessel OPEX, as we commented on the Q1 presentation, we were a bit low compared to budget. But that is timing effects of our expenses. So we're slightly higher this quarter, but please note the full six months average of 14,600, and we are in that sense in line with our budgets. When we look at the net income, net income at 21,800, that is 41 cents per share. In the report, you will see that we had realized gains from a derivative portfolio of 6.8 million, and we had unrealized losses of 3.4 million. In the adjusted numbers, we adjusted out the unrealized gains and losses, so for this quarter, it's 3.4 million, and also the slight effects gain. And then we also add back the cash gains that we realized on the amendment of an interest rate derivative swap in April. As announced in the first quarter presentation, we reduced the duration of two swaps, one for Q1 and one for the second quarter, and that's adjusted into the numbers, so we get an adjusted net income of 30.4 million of 56 cents per share. Looking at our cash balance, we're 38 million from operations, and 9 million of change in networking capital. We reduced our depth by 27 million in schedule installments, and the hair also, they cash from determination of the swap, and then paid dividends of 40 million. That ends up, but the cash balance at the end of the quarter, 370 million, and as we know there, as the mentioned refinancing, so expected to be concluded in the second half of the year, we will free up 97 million.

Speaker Change: And as we have said and touched upon a lot of times in the past, the dividend decision factors

Speaker Change: I'm not going to go into too much detail, the change we have here is we upgraded Market Outlook.

Speaker Change: for reasons I will tell you in the market section.

Speaker Change: Spot rates are up, but that's not really the driver here, it's really the fact that term rates have been picking up.

Speaker Change: where we take this back to green. As I said in the last presentation, we were intending to have the color yellow also in Q4-23, when we reported in February , but we got a bit colorblind here by all the green lights and forgot to do it.

Speaker Change: but we are upgrading it to green, so green colors on most of the decision factors in terms of the dividend and 75 cents, again determined to take the 12-month dividend to 3.25 dollars.

Speaker Change: Then I think I hand it over to you, Knut, on the financials.

Knut: Thank you, Hussain.

Knut: Revenues for the quarter came in at $84.7 million.

Knut: Slightly down from the first quarter, but as explained by Eystein, this is due to the seasonal lower period impacting the variable hire contract for Flex Artemis and also the spot operations for Flex Constellation.

Knut: In addition, we had fewer operating days as we had a number of ships in dry docking resulting in off-fire.

Knut: that returns into a time charter equivalent per day of 72,400

Knut: And if you look at the Vessel OPEX, as we commented on the...

Speaker Change: Q1 presentation. We were a bit low compared to budget, but that is timing effects of our expenses.

Speaker Change: So we're slightly higher this quarter, but please note the full six months average of 14,600, and we are, in that sense, in line with our budget.

Speaker Change: When we look at net income, net income at $21,800,000, that is $0.41 per share.

Speaker Change: In the report, you will see that we had realized gains from a derivative portfolio of 6.8 million and we had unrealized losses of 3.4 million.

Speaker Change: In the adjusted numbers we adjust out the unrealized gains and losses so for this quarter the 3.4 million and also the slight FX gain and then we also add back

Speaker Change: The cash gains that we realized on the amendment of an interest rate derivative swap in April

Speaker Change: As announced in the first quarter presentation, we reduced the duration of two swaps, one for Q1 and one for the second quarter. And that's adjusted into the numbers, so we get an adjusted net income of 30.4 million of 56 cents per share.

Speaker Change: Looking at our cash balance, we're at 38 million from operations and 9 million of changing net working capital. We've reduced our debts by 27 million in scheduled installments.

Speaker Change: and the hair also, the cash from determination of the swap.

Speaker Change: and then pay dividends of 40 million. That ends up at the cash balance at the end of the quarter 370 million. And as we note here, as the mentioned refinancings are expected to be concluded in the second half of the year, we will free up 97 million.

and I'll come back to the refining a bit later. On our derivative portfolio, we have reduced duration of it, maintained the short term high coverage, which is in line with our expectations of the long term interest rate development. When we now add a Japanese operating lease, we will also have a fixed rate element of that. In August , we also amended a so-called mirror swap structure where we now have added $100 million and used the positive value from the mirror swap structure to reduce the fixed rate interest rate. As you see there, it's a six-year starting in 2026 at 82.5 basis points. On the refinancing, they started off with a new contract or the extension of the Flex and Devour contract, which made sure attractive for a lease financing and in particular these jolco financing structures. We have raised them $160 million for that. It's at about 10 years lease financing and that will release about $48.5 million. This is a structure where we have a fixed rate element and a floating rate element. On a blended basis, we have a loan margin here of about so-for-plus 130 basis points, which is very attractive. On the back of that, we are then refinancing the two remaining vessels of the old $375 million facility. We are extending the duration and also increasing the leverage somewhat. That will release $48 million. As you see, we are matching the terms of the recent $290 million facility where we have now a margin of so-for-plus 185 basis points. In total, this will release $97 million and we expect to conclude these transactions in Q4. If we look at a depth maturity profile, we see that we are now prematurely addressing our 2028 maturitys. We are pushing them now, so we have remaining maturity in 28 of $103 million and then spreading out the remaining maturitys. And with that, I hand it back to you guys then. Okay, thank you very much. You don't want the same market, so you hold it in with Madonna. Okay, let's look at the market. This is the overall product market for LNG. Quite muted growth in the quarter of just about 1% year-over-year compared to last year with Australia. Now in the US being the main growth engine, now solidly behind. I had the Australian Qatar for the 3 million tons in the first half of the year versus 41 and 44 Australian Qatar. It's interesting to see that despite the conflict in a crane rush, there is still growing and expect them to grow even more so now with we have seen two loadings on the Arctic LNG too. The new liquefaction plant where they have been able to source oldest intonage for this project to do the loadings as we alluded to in our main presentation where we said that we thought that our shadow fleet of LNG ships would develop based on the discussion we had with different market actors and interest in the S&P market. So not really surprising for us to see that, rather a bit surprising that some people didn't expect this to happen. Shave had a lot of time to prepare for this and we are basically following the recipe for the petroleum market where they have been successful in keeping oil barrels flowing to friendly nations, typically India, China, Brazil, so it's really the bricks. So we do think that the Russians will find also willing buyers for these LNG volumes. On the import side, we have mature Asia being Japan, Korea, Taiwan growing 4% even mostly by coal shuttons and of course lower prices also helps. Europe had a mile winter with high inventory coming out of the season, somewhat muted energy demand and then reducing its imports by 20% year over year which means more targets are flowing again back to Asia, China growing very steadily, 10% driven by low prices compared to other feedstocks, India even more so 25% impressive growth in India. Thailand being growing for a long time now, 11% and rest of world also, very good growth, 28%. So we do see more shift of cargo to Asia which I will come back to here shortly. If you look at it graphically, you will see the US LNG export here going to Europe which kind of increased dramatically once you had uncertainty with Russian flows to Europe and even more so when you had the invasion, state that very elevated levels, the energy situation in Europe is more manageable these days and prices have come down which enticing Asian buyers back to the market with now the Asian imports being bigger. Again, then Europe which used to be the case in the past, as you can see here in European gas demand here over year change, we do see some pickup in industry but power generation residential is quite muted and also gas storage levels that around 85% is quite high compared to the past, the 10 year average solidly I had of that. And then as I mentioned Asia is where we see the growth which is generally positive for shipping, flexible cargo all the way to Asia.

Speaker Change: And I'll come back to the refindings a bit later.

Speaker Change: On our derivative portfolio

Speaker Change: We have reduced the duration of it, maintained the short-term high coverage, which is in line with our expectations of the long-term interest rate development.

Speaker Change: When we now add a Japanese operating lease

Speaker Change: We will also have a fixed rate element of that.

Speaker Change: and in August we also amended a so-called mirror swap structure where we now have added hundred million dollars and used the positive value from the mirror swap structure to reduce the fixed rate interest rate.

Speaker Change: And as you see there, it's six years starting in 2026 at attractive 82.5 basis points.

Speaker Change: On the refinancing, they started off with a new contract or the extension of the Flex Endeavor contract which made sure attractive for a lease financing and in particular these Jolko financing structures.

Speaker Change: We have raised $160 million for that. It's about 10 years lease financing, and that will release about $48.5 million.

Speaker Change: This is a structure where we have a fixed rate element and a floating rate element and on a blended basis we have a loan margin here of about so far plus 130 basis points which is very attractive

Speaker Change: On the back of that, we are then refinancing the two remaining vessels of the old 375 million facility. We are extending the duration and also increasing the leverage somewhat.

Speaker Change: That will release 48 million. As you see, we are matching the terms of the recent 290 million facility, where we have now a margin of SOFR plus 185 basis points.

Speaker Change: In total this will release 97 million dollars and we expect to conclude this transactions in

Speaker Change: in Q4.

Speaker Change: If we look at the debt maturity profile, we see that we are now prematurely addressing our 2028 maturities. We are pushing them now, so we have remaining maturity in 2028 of $103 million, and then spreading out the remaining maturities.

U.S.M.: And with that, I hand it back to you, Eysen.

Speaker Change: Okay, thanks for your knot. I'm sure you don't want the same knot as you have with Madonna.

Speaker Change: Let's look at the market.

Speaker Change: So this is the overall product market for LNG, quite muted growth in the quarter up just about 1% year over year compared to last year.

Speaker Change: with QS being the main go-to engine, now solidly behind, ahead of Australia and Qatar, 43 million tons in the...

Speaker Change: the first half there between 41 and 44 in Australia and Qatar. Interesting to see that despite

Speaker Change: The conflict in Ukraine-Russia is still growing.

Speaker Change: We expect them to grow even more so now with, we have seen two loadings on the Arctic LNG 2, the new liquefaction plant where they have been able to source older steam tonnage for this project, to do the loadings as we alluded to in our presentation.

Speaker Change: May presentation where we said that we thought that a shadow fleet of LNG ships would develop

Speaker Change: based on, you know, the discussion we had with different market actors.

Speaker Change: and interest in the S&P market, so it's not really surprising for us to see it, but it is a bit surprising that...

Speaker Change: Some people didn't expect this to happen.

Speaker Change: Shav had a lot of time to prepare for this.

Speaker Change: We are basically following the recipe for the petroleum market where they have been successful in keeping oil barrels flowing to friendly nations, typically India, China, Brazil, so it's really the BRICS.

Speaker Change: So, we do think that the Russians will find also willing buyers for these LNG volumes. On the import side...

Speaker Change: We have matured Asia, being Japan, Korea, Taiwan, growing 4% driven mostly by coal shutdowns

Speaker Change: and of course...

Speaker Change: Lower prices also helps.

Speaker Change: Europe had a mild winter with high inventories coming out of the season.

Speaker Change: somewhat muted energy demand, and then reducing its imports by 20% year over year, which means more cargoes are flowing again back to Asia. China growing very steadily, 10%.

Speaker Change: Driven by...

Speaker Change: Low prices compared to other feedstocks in their even more so 25% impressive growth in their. Thailand being growing for a long time now.

Speaker Change: 11% and the rest of the world also, very good growth, 28%

Speaker Change: So we do see more shift of cargoes to Asia, which I will come back to here shortly.

Speaker Change: If you look at it graphically, you will see the U.S. LNG export share.

Speaker Change: going to Europe, which kind of increased dramatically once you had the uncertainty with Russian flows to Europe, and even more so when you had the invasion.

Speaker Change: stayed at very elevated levels. The energy situation in Europe is more manageable these days and prices have come down, which is enticing Asian buyers back to the market.

Speaker Change: with now the Asian importers being bigger again than Europe, which used to be the case in the past. As you can see here in European gas demand.

Speaker Change: Here over year change, we do see some pickup in industry, but power generation, residential is quite muted, and also gas storage levels at around 85 percent is quite high compared to the past, the 10-year average solidly ahead of that.

Speaker Change: And then, as I mentioned, Asia is where we see the growth, which is generally positive for shipping, shipping flexible cargoes all the way to Asia.

We are Panama's almost, it's about twice the distance then going to Europe but few LNG ships utilize the Panama Canal Panama authorities have had discussions with the LNG exporters to try to find ways to entice them to use the Panama Canal but a lot of people are trading ordered, capable of good hope, which means that Tonmail grows even more quicker since Suez is not really a feasible route this time, so if you have a US cargo going from US to Europe typically, rule of thumb is about 5,000 nautical miles going to China 10,000 nautical miles going to China via Cape of Goodop 15,500 nautical miles, so it's really a big driver of Tonmailage, which is good for the shipping market and which is also why shipping market have the sentiment has turned in the recent months, so you do see here on the right hand side, Astonia LNG imports is up in the high range of historical demand and much higher than last year. Recent trend here lately, again about Russia, we have had a somewhat surprising invasion of Ukrainian troops into quite far into Russia all the way to Kursk, not that far away from Moscow and these are creating uncertainty about Russian pipeline volumes that going to Europe is still quite a lot, it's also still a lot Ukraine in trend, as you can see here on the left side of the graph affecting potential purchases like Austria, Slovakia, Moldova, and that's been firing up the European gas prices recently, as more concerned about supply situation, but then we also see a similar response in Asia, Asia also want the LNG, they have been through heatwave, cool demand has shot up and we actually see a similar increase in the JKM, which is the Japan Korea market or the Asian spot price and this really needs to be higher than the European gas price TTF in order to make the cargo economic so that you are willing to take the longer route to Asia rather than just selling the cargo into the European market, and rehab prices still at low levels, making this spread between US domestic gas prices and international gas prices very attractive for those people with a contract that can ship the cargo from US to Europe and Asia. As I mentioned, the spot market has also turned up, we do follow the seasonal pattern here, so coming from fairly good levels at the start of the year when we are in the winter season and then you have the Löl in the shoulder months, let's say March April, where you hit the bottom and then trending up towards right now to stroke the modern type of LNG chips, 80, 85,000 and a dotted line here in the future prices, where we do see levels of $140,000 in the peak winter season, that's why we also think that our numbers will be the best in Q4 affecting the one spot chip we have. All levels are lower than we have seen in the past, it's still historically very high levels, once you are getting above $100,000 small chip on us with a spot chip is quite happy.

Speaker Change: via Panama. It's about twice the distance than going to Europe, but few LNG ships utilize the Panama Canal. Panama authorities have had discussions with LNG exporters to try to

Speaker Change: find ways to entice them to use the Panama Canal, but a lot of people are trading rather Cape of Good Hope, which means that the ton-mile goes even more quicker, since Suez is not really a feasible route this time. So if you have a US cargo going from US to Europe, typically rule of thumb is about 5,000 nautical miles going to China, 10,000 nautical miles.

Speaker Change: Going to China via Cape of Good Hope, 15,500 nautical miles, so it's really a big driver of tonne mileage, which is good for the shipping market and which is also why the shipping market, the sentiment has turned in the recent months.

Speaker Change: So you do see here on the right hand side Asian LNG imports is up in the high range of historical demand and much higher than last year.

Speaker Change: Recent trend here lately, again about Russia

Speaker Change: We have had a somewhat surprising invasion of Ukrainian troops.

Speaker Change: into quite far into Russia, all the way to Kursk.

Speaker Change: Not that far away from Moscow, and these are creating uncertainty about Russian pipeline volumes that going to Europe is still quite a lot. It's also a...

Speaker Change: still a lot Ukrainian transit as you can see here on the left side of the graph

Speaker Change: affecting you know potential purchasers like Austria, Slovakia, Moldova and that's been firing up the European gas prices recently as there's more concern about supply situation

Speaker Change: But then we also see a similar response in Asia. Asia also want the LNG. They have been through a heat wave where cool demand has shot up and we actually see a similar increase then in the JKM, which is the Japan-Korea marker or the Asian spot price.

Speaker Change: and this really needs to be higher than the European gas price TTF in order to

Speaker Change: make the cargo economy so that you are willing to take the longer route to Asia rather than just selling the cargo into the European market. Henry Hub Price is still at low levels making this spread between

Speaker Change: US domestic gas prices and international gas prices very attractive for those people with a contract that can ship the cargo from US to either Europe then or Asia.

Speaker Change: As I mentioned, the sports market has also risen. We follow this seasonal pattern. We come from quite good levels at the beginning of the year when we are in the winter period and then we have the lull during the quarter of the month.

Speaker Change: Let's say March-April, where you hit the bottom and then trending upwards right now two stroke.

Speaker Change: The modern type of LNG chips 80-85,000 and the dotted line here represent the future prices where we do see levels of

Speaker Change: Yeah, $130,000-$140,000 in the peak winter season. That's why we also think that our numbers will be the best in Q4, affecting the one-spot chip we have.

Speaker Change: Although levels are lower than we've seen in the past, it's still historically very high levels. Once you're getting above $100,000, most ship owners with a spot ship is quite happy.

But, you know, what we have been more, which we think is a more positive sign is the trend up in the term rates. So, for some time now we have had a soft spot market which have dragged on the rate curve where short term rates been lower than long term rates, but that has changed. So, while long term rates 10-year shorters, these are typically for new builds, economics are around $95,000 a day, which is needed in order to defend an investment of, let's say, 260 million at yard sticker price, plus the lead time, typically three and a half, four years, and the kind of financing cost of that kind of lead time. So, five-year rates now ticked up slightly ahead of the 10-year rate, which I think both well also then for the ships we have coming open, 26-27-28 where we can reconstruct ships, hopefully at better levels than what we have today and thereby increasing our revenues down the road. In terms of the order book, still it's quite a lot of new builds for delivery near term. This is one of the main reason why we have taken protection by having a very long backlog in near term until 26-27-28 where we think market condition looks better because then we've been through this massive order book. Of course, the order book is for two reasons. It's a lot of new projects coming to the market which needs and requires ships, and then it's the general face of all of the older steam ships that are un-economically, which needs to be replaced and there's still a lot of these ships which eventually will be faced out of the market. The positive to see now that with the high prices of new builds in the long lead time, very seldom you see any speculative contracting. The contracts being done are mostly for Qatar for their planned expansion and renewal and then Adnock was recently in the market securing quite a few LNG ships for their expansion and renewal projects. So less than 7% of these ships in order around 350 of those are speculative or open. If you look at the steam ships, we just on the left hand side here I have a like a scatter graph where you will see the re-delivery of these steam ships. So as we said in the past, most of these steam ships were built against 20, 25-year chargers, back-to-back typically with the LNG purchasing contract and typically these ships were built around 2000. So these ships are now coming off or rolling off existing legacy contracts and we do not expect the vast majority of these ships being able to extend those contracts. So these ships will be faced out of the market because they are not economically because of the inefficiency and the size of these ships. So here we see all the ships being re-delivered near term and the age of these ships and some of these ships are rather old and then as I touched upon we have seen buyers linked to Russia picking up a couple of these ships for their trade in order to lift the volumes from the sanctioned article in G2. If we look at the right hand side is the economics for these ships given their inefficiency the rates for these ships are much slower than for the modern time.

Speaker Change: But you know what we have...

Speaker Change: and my...

Speaker Change: been more, which we think is a more positive sign, is the trend up in the term rates. So for some time now we have had a soft spot market which has dragged down the rate curve where short-term rates have been lower than long-term rates.

Speaker Change: But that has changed so while

Speaker Change: Long-term race 10 year shorters, these are typically from new builds, economics around $95,000 a day, which is needed in order to defend an investment of, let's say, $260 million at yachts, ticket price plus.

Speaker Change: The lead time, typically three and a half, four years, and the kind of financing cost of...

Speaker Change: of that kind of lead time.

Speaker Change: So, 5-year rates now ticked up slightly ahead of the 10-year rate.

Speaker Change: which I think bodes well also then for the ships we have coming up in 2026, 2027, 2028 where we can recontract ships hopefully at better levels than what we have today and thereby increasing our revenues down the road.

Speaker Change: In terms of the order book

Speaker Change: Still, it's a quite a lot of new bills for delivery in Nerturm. This is one of the reason why we have taken protection by having a very long backlog in Nerturm until 26,278, where we think market condition looks better.

Speaker Change: because then we've been through this massive order book.

Speaker Change: Of course, the order book is for two reasons. It's a lot of new projects coming to the market which needs and requires ships.

Speaker Change: and then it's the general phase-off out of the older steamships that are uneconomically, which needs to be replaced, and there are still a lot of these ships.

Speaker Change: which eventually will be phased out of the market. Positive to see now that with the high prices of new builds and the long lead time, very seldom you see any speculative contracting.

Speaker Change: The contracts being done are mostly for Qatar for their planned expansion and renewal.

Speaker Change: and then Adnok was recently in the market securing quite a few LNG ships for their expansion and renewal project. So less than 7% of these ships in order, around 350 of those are speculative or open.

Speaker Change: If you look at the steamships, we just on the left hand side have like a scatter graph where you will see the re-delivery of these steamships. So as we said in the past, most of these steamships were built against 20-25 year charters.

Speaker Change: back-to-back, typically with the LNG purchasing contract, and typically these ships were built around 2000.

Speaker Change: So these ships are now coming off, or rolling off, existing legacy contracts.

Speaker Change: and we do not expect...

Speaker Change: The vast majority of these ships being able to extend those contracts

Speaker Change: So these discs will be exposed from the market because they are not economical, because of the short-term nature and the size of these discs.

Speaker Change: So here we see all the ships being re-delivered near term and the age of these ships, and some of these ships are rather old. And then as I touched upon, we have seen...

Speaker Change: Buyers link to Russia

Speaker Change: is picking up a couple of these ships for their trade in order to lift the volumes from the sanctioned article in G2. If we look at the right hand side is economics for these ships, given their inefficiency, the rates for these ships are much lower than for the modern economics.

In terms of the product market, despite the moratorium on U.S. export licenses coming into force, in January we still see a lot of activity in terms of buyers committing to long-term off-tech agreements, and even doing so in U.S. because most buyers feel confident that the moratorium will be lifted regardless of who will win the election, as there is a lot of projects ready can create economic value for the country, exports which generate trade surplus and not really trade surplus in general for U.S., but at least an improved trade situation, and also jobs. So we do see people signing up not only to Cateri Volens, but also in U.S. for U.S. projects that are being put in a bit of a limbo right now, but where people are signing up because I think this moratorium will be lifted depending on who wins the election either later this year or probably next year, if the Democrats win. So good to see that that volumes are quite healthy, 48 million tons contracted in first half of this year, which is not far of the previous year despite this moratorium and the duration of this contract on average 14 years. So as I mentioned then, there is a lot of project in the U.S., ready for being green-lighted once the moratorium is lifted despite not any U.S. project being sanctioned in the first half of year. We saw project other places, of course not filled west in Qatar, 16 million tons, which is why they are contracting more ships. United Arab Emirates are 10 million tons, which we are also expected and why Adnoq Abu Dhabi National Oil Company is out in the market also contracting LNG ships, one project in Canada and one in Oman bringing the FID volume to 30 million tons. In the first half of the year and once we get the moratorium lifted, there's a lot of volumes that can be sanctioned very quickly in the U.S., and while we are waiting for this, as I mentioned, these projects are signing up more off-take agreements, which means that once the moratorium is lifted, they are ready to go because they have the required contract coverage to FID those projects. So that is kind of underpinning the third wave of LNG. We will see a lot of growth in the market from 26, 27, 28, where we have most of our ship open, so we can benefit from this growth in the market, we can benefit from the replacement of steam ships, and the fact that term rates today are higher than what we have in our portfolio today, so we can reprise the portfolio. And as Krut mentioned, the interest rates are also on the way down, expectations. So interest expenses is actually our biggest cost component, so if interest rate drops, that will also be beneficial for free cash flow. So growth can't be then come from Qatar and U.S., and I think we are well positioned to capture that growth. So with that, I think we just summarized the presentation with delivered numbers according to our guidance 56 cents of adjusted earnings per share, which is the measure which takes out the unrealized effects of the derivatives. We have secured one new contract for flex translation. We have some new financing that Knut has talked about, which are very attractive in our view. We have done the dry docking schedule for this year. Next year we will have four ships for dry docking, three in 26, and then zero in 27. So we

Speaker Change: In terms of the product market.

Speaker Change: despite

Speaker Change: Moratorium by the White House on U.S. export licenses coming into force in January. We still see a lot of activity in terms of buyers committing to long-term offtake agreements.

Speaker Change: and even doing so in the U.S. because most buyers feel confident that the moratorium will be lifted regardless of who will win the election, as there is a lot of projects where they can create economic value for the country.

Speaker Change: exports which generate trade surplus and not really trade surplus in general for US, but at least an improved trade situation.

Speaker Change: and also jobs. So we do see people signing up not only to Qatari volumes, but also in US for US projects that are being put in a bit of a limbo right now, but where people are signing up because they think this moratorium will be lifted.

Speaker Change: and...

Speaker Change: depending a bit on who wins the election either.

Speaker Change: later this year or probably next year if the Democrats win. So good to see that the volumes are quite healthy, 48 million tons.

Speaker Change: Contracted in first half of the air, which is not far off [inaudible]

Speaker Change: The previous year, despite this moratorium and the duration of these contracts on average, 14 years.

Speaker Change: So, as I mentioned then, there is a lot of projects in the US ready for being green-lighted once the moratorium is lifted, despite not any US project being sanctioned in the first half of the year. We saw projects in other places.

Speaker Change: Of course, Northfield West in Qatar, 16 million tons, which is why they are contracting more ships.

Speaker Change: in the United Arab Emirates, the 10 million tons, which we also expected, and why ADNOC

Speaker Change: Abu Dhabi National Oil Company is out in the market also contracting LNG ships. One project in Canada and one in Oman bringing the FID volume to 30 million tons.

Speaker Change: In the first half of the year, and once we get the moratorium lifted, there's a lot of volumes that can be sanctioned very quickly in the U.S. And, you know, while we are waiting for this, as I mentioned, these projects are signing up more off-take agreements, which means that once the moratorium is lifted, they are ready to go because they have the required contract coverage.

Speaker Change: to FID those projects.

Speaker Change: Uh-huh.

Speaker Change: So that is kind of underpinning the third wave of LNG. We will see a lot of growth in the market from 2026, 2027, 2028.

Speaker Change: where we have most of our ship open so we can benefit from this growth in the market. We can benefit from the replacement of steam ships and the fact that the term rates today are higher than what we have in our portfolio today so we can reprice the portfolio and as Knut mentioned the interest rates are also

Knut: on the way down expectations. So interest expenses is actually our biggest cost component. So if interest rate drops, that will also be beneficial for free cash flow. So growth will then come from Qatar and US.

Speaker Change: and I think we are well positioned to capture that growth.

Speaker Change: So with that, I think we just summarized the presentation. We delivered numbers according to

Speaker Change: Our guidance, 56 cents of adjusted earnings per share, which is the measure which takes out the unrealized effects of the derivatives. We have secured one new contract for Flex Constellation.

Speaker Change: We have some new financings that Knut has talked about, which are very attractive in our view. We have made the dry-docking schedule for this year.

We have this on a regular basis every five years, we take the ship out of service. This year we've been able to do that on 17 days in average. Revenue is expected to pick up in Q3 driven by all ships back in operation, higher spot rate on one ship. And then we think numbers will be probably better in Q4. We'll come back with a guidance on that when we are reporting in November. And once again we declare an ordnary quarterly dividend of 75 cents per share, giving you a $3.12 on a 12 month basis, 12% yield. And we are well-covered to pay that dividend with our performance cash balance of 467 I believe it was and then of course the backlog guy I showed you earlier today. So with that I think we conclude the presentation and Knut might have some questions on his laptop. Yes, thank you all for the questions you have provided. We have a number of them. But maybe start with the market and the sentiment for long term contracts. Have you seen any change in sentiment or activity? And how do you then view the opportunities for types of facts, consolation and flex ranger? I think it's easy to say something. But we are about data driven as well. So we do see that rates have picked up on the term rates. Spot rates of course is not a new usual spot rate picks up. They usually pick up the bottom out, typically most April and then they go up. But we do see also the term rates picking up fair and we are once in a situation where shorter term rates of five year rate are higher than 10 year rates, which is how the market should be in a balanced way. If somebody can commit to taking a ship for five years at the same rate as a 10 year, most people will commit to taking five years rather than 10 years. Typically people want to discount if they're taking a commitment of 10 years rather than five years. So we are getting a bit better balance in the market. We do see increased inquiries for term rates. It's not really surprising because there is this role of steam tonnage I shown earlier today. The steam ships on legacy contracts being rolled off. People don't want to keep those ships. They want to renew them with much more efficiency. We've shown in the past few efficiency per cargo tonn lifted on all ships is about 58% better than a steam ship. So that means that it's not only good economics, it's also good for the environment. So when people are committing for a five 10 year charter, they don't want steam technology. They want the new ships. So we do see more inquiries for that for fleet renewal and also some of these projects where all signing of SBA contracts are also starting to look looking in shipping. So I think that both swell for our strategy here trying to fix that window near term where we have denuded growth of the market in terms of volumes and then having our ships available ready for the next wave of LNG. We touched upon in the presentation on the Russian shadow fleet. So a number of questions here.

Knut: Next year we will have 4 ships for dry docking, 3 in 26.

Speaker Change: and then zero in twenty seven. So, we're...

Knut: We have this on a regular basis. Every five years we take the ship out of service. This year we've been able to do that on 17 days on average.

Knut: Revenues expected to pick up in Q3, driven by all ships back in operation, higher spot rate on one ship.

Knut: and then we think numbers will be probably better in Q4.

Knut: We'll come back with a guidance on that when we are reporting in November. And once again, we're declaring an ordinary quarterly dividend of 75 cents per share.

Speaker Change: Giving you three dollars twelve and a half cents

Speaker Change: on a Trailing 12-month basis, 12% yield.

Speaker Change: and we are open to paying that dividend with a cash balance of 467 kronor, I believe it was.

Speaker Change: and of course the backlog guy.

Speaker Change: I showed you earlier today. So with that, I think we conclude the presentation and Knut might have some questions on his laptop.

Knut: But maybe start with the market and the sentiment for long-term contracts. Have you seen any change in sentiment or activity and how do you then view the opportunities for types of Flex Constellation and Flex Ranger?

Speaker Change: Yeah, I think it's easy to say something, but we are a bit data-driven as well, so we do see that.

Speaker Change: have picked up on the term rates. Spot rates, of course, it's not unusual that spot rates pick up. They usually pick up. They bottom out typically March, April , and then they go up.

Speaker Change: We do see also the term rates picking up there, and we are once in a situation where...

Speaker Change: Shorter term rate or 5-year rate or higher than 10-year rates, which is how the market should be in a balanced way, you know. If somebody can commit to taking a...

Speaker Change: ship for five years at the same rate as a 10 year. Most people will commit to taking five years rather than 10 years. Typically, people want a discount if they're taking a commitment of 10 years rather than five years. So we are getting a bit better balanced in the market. We do see increased inquiries.

Speaker Change: for terminal rates. It's not really surprising because there is this roll-off of steam tonnage I've shown earlier today. Steam ships on legacy contracts being rolled off. People don't want to keep those ships, they want to renew them with much more efficient ships we've shown in the past.

Speaker Change: Fuel efficiency per ton lifted on our ships is about 58% better than a steamship.

Speaker Change: So that means that it's not only good economics, it's also good for the environment. So when people are committing for a five, ten year charter, they don't want...

Speaker Change: and Steem Technologies, they want new ships, so we do see more inquiries for that, for fleet renewal and also some of these projects where they are now signing up SBA contracts are also starting to look at locking in shipping.

Speaker Change: So, I think that both well for our strategy here trying to fix that wind on earth term where we have seen new to the growth of the market in terms of volumes and then having our ships available ready for the next wave of LNG.

How do you see that impacting the LNG shipping market if that's the ability to grow to a large fleet and how that will impact the global trade? This is not like a new phenomenon. This is a well developed situation on the tanker side, both the crude tankers and the product tankers. But also on the LPG side, the iron avans gas as well, the shadow fleet on the VLJC is very big there. We're talking up to 15% of the fleet being in this captive shadow trade. So for that particular trade, it's Iran, China. On the petroleum products, it's typically Russia, India, China, maybe Brazil. On the crude, it could be Venezuela, Iran. And then Russia, so it's a lot of read through from the other markets. It's basically the same thing happening. Older ships are being taken up by affiliates with Russian counterparties and they go into a captive trade. Once that ship goes into that trade, it will never come back to the regular trade. It will stay in that trade. If they have insurance at all, it's with our shady counterparties. And this is a way for the sanction party to avoid the sanction and being able to generate revenues on the products. So it means that you could have some thin tonnage that we thought might be scrapped, will go into that trade. But this basically also then to replace those ships that the Russians were trying to buy. A lot of ice-paking arc 7 ships, which were sanctioned and are not delivered. So they have to find a way to arrange that logistics without those ships that they contracted. So it doesn't really affect the net fleet growth because some ships are not being delivered. And some ships that we thought would be scrapped, they might go into this trade. And we will never be in this kind of trade. Most serious actors will not be in that trade. But it just changed the dynamics because we haven't had the shadow fleet in LNG in the past. But it seems like this is something that will happen now with a lot of similarities to the tankers and the real GC side. But you know, it's not good in the sense that you have a lot of ships trading around the world without proper insurance and maybe not proper maintenance. And these ships are old. So it's a time bomb before one of these ships end up in a situation where you will have spills and ships thinking, breaking, whatever, which will be an environmental catastrophe. It's not that serious on the LNG side because the LNG is cool meeting. So if something happens that gas or the LNG on that ship will hit up, pick home gas vapors or basically meeting vapors and it will evaporate. But that is not the case if you look at the crew tankers or the petroleum tankers then you have a product that's not going to evaporate. But it's going to be landing on somebody's show.

Speaker Change: We touched upon in the presentation on the Russian Shadow Fleet, so a number of questions here.

Speaker Change: How do you see that impacting the LNG shipping market?

Speaker Change: Their ability to grow to a large fleet, and how that will impact the global trade. Yeah, this is not like a new phenomenon. This is a well-developed situation on the tanker side, both the crude tankers and the product tankers.

Speaker Change: but also on the...

Speaker Change: LPG side, I run Avanskas as well, the shadow fleet on the VLJC is very big there, we're talking up to 15% of the fleet being in this capital shadow trade. So for that particular trade, it's Iran-China.

Speaker Change: On the petroleum products, it's typically Russia, India, China.

Speaker Change: maybe Brazil. On the crude, it could be Venezuela, Iran, and then Russia. So it's a lot of retro from the other markets. It's basically the same thing happening. Older ships are being

Speaker Change: taken up by the affiliates with the Russian counterparties and they go into a captive trade. Once that ship goes into that trade, it will never come back to the regular trade. It will stay in that trade.

Speaker Change: If they have insurance at all, it's with a shady counterparty. And this is a way for the sanctioned party to avoid the sanction and being able to generate revenues on the product.

Speaker Change: So it means that, you know, you could have some steam tonnage that we thought might be scrapped will go into that trade, but this basically also tend to replace those ships that the Russians were trying to buy, a lot of ice-breaking Ark 7 ships.

Speaker Change: which were sanctioned and they are not delivered, so they have to find a way to arrange that logistics without those ships that they contracted, so it doesn't really...

Speaker Change: which can affect the NEP fleet, because some discs are not manufactured and some discs that we thought would be scrapped can enter this trade and we will never be in this trade. Most serious players will never be in this trade.

Speaker Change: It just changed the dynamics because we haven't had the shadow fleet in LNG in the past, but it seems like this is something that will happen now and with a lot of similarities to the tankers and the VLGC side.

Speaker Change: But you know, it's not good in the sense of you have a lot of ships trading around the world without proper insurance, and maybe not proper maintenance. And these ships are old. So it's a, you know, it's a time bomb before one of these ships...

Speaker Change: end up in a situation where you will have spills and ships sinking, breaking, whatever, which will be an environmental catastrophe.

Speaker Change: It's not that serious on the LNG side, because LNG is cooled methane. So if something happens...

Speaker Change: That gas, or the LNG on that ship, will heat up, become gas vapor, or basically methane vapor, and it will evaporate.

Then we are transitioning over to the trading pattern of the global fleet and a normalization in the Panama Canal operations, but still most of the ships are trading to the Cape of Good Hope. Do you see and they turn back to normalization with transit to Panama Canal or continue that the Cape of Good Hope will be the preferred route? I think the booking schedule in Panama is not really always suitable to the LNG's trade. It's very rigid. A lot of things can happen in the market. You book a slot and you have a cargo, certainly prices move and you rather want to send that cargo somewhere else or in terms of your ballasting a ship and if you're going a Pacific Ocean when you're ballasting on that ship, there's really no pace to pick up a cargo except for US. If you're ballasting from China to the Atlantic, you can pick up a cargo in Australia, you can pick up a cargo in the Middle East. West Africa also gives you a lot more optionality to fix that ship on a cargo while if you're going in the Pacific route, you only have just one option. The Canal authorities have been in dialogue with LNG players who try to find a system that incentivize them to use the Canal more but we still see that people just don't like the rigidity and also there are costs associated with using the Panama Canal. If you have a lot of slack in your program, for example, you have a commitment to deliver a cargo, you have a natural boil off so kind of some of the fuel has a sun cost. So if you are using the Panama, you're paying them the toll, you go through, you come to China and then you're waiting for 10, 40 days in order to discharge, you will not stop the boil off so you have to kind of consume that and then you know it's not really any cost of going the longer route, you save the Panama fees and you're just burning the same basically amount of LNG. There are some differences there because some ships have equipped a relic system, we have four ships with a partial relic, three ships with the full relic. So if you have those kinds of ships, very advanced ships, you can use the Panama, you can go to China, you can idle there and you can relic with a part of the boil off and then get that back to cargo, so to reduce your fuel. So it's really a bit also dependent on the specification of the ship in that thread. And then we follow up to that, as you see in more and more cargo going to Asia and also taking the long route to the Panama Canal and now sorry the capital good hope. The tunnel effect of that versus the fleet supply coming over the next. So of course, in general of course, we always like when you have a pulto Asia, especially if you have a pulto Asia with congestion in Panama because as I mentioned, these numbers in Nautical Mile, it really drives up the requirement for ships. So we've seen that now, in Relaytley, often if you have ships from US going to Asia and not utilizing the Panama, they will typically use the Suez Canal, better weather and shorter route. Today nobody is using that except for those taking cargo into Egypt, which has switched from being export to import the recent land to Jordan, except for that nobody is using the Suez Canal for transit except for these two ships linked to Russian buyers or Arctic too. So it's positive. We want as much LNG as a flow to Asia in general because it drives up from the mind and that's one of the reasons why I would say spot markets been surprisingly good this summer because we didn't really expect that much built to Asia and then on top of that you have the Suez crisis, which also adds some some extra tonne miles.

Speaker Change: But that is not the case if you look at the crude tankers or the petroleum tankers. Then you have a product that's not going to evaporate, but it's going to be landing on somebody's shores.

Speaker Change: Then we are transitioning over to the trading pattern of the global fleet and a normalization in the Panama Canal operations.

Speaker Change: But still, most of the ships are treading through the Cape of Good Hope. Do you see any trend back to a normalization with transit through Panama Canal, or continue that the Cape of Good Hope will be the preferred route?

Speaker Change: I think the booking schedule in Panama is not really always suitable to the LNG trade, it's very rigid.

Speaker Change: A lot of things can happen in the market, you book a slot and...

Speaker Change: You have a cargo suddenly prices moves and you rather want to send that cargo somewhere else or in terms of your ballasting a ship and

Speaker Change: If you're going to the Pacific Ocean when you're ballasting on that ship, there's really no place to pick up a cargo except for the US. If you're ballasting from China to the Atlantic, you can pick up a cargo in Australia, you can pick up a cargo in the Middle East.

Speaker Change: West Africa, so it gives you a lot more optionality to fix that chip on a cargo while if you go in the Pacific route you

Speaker Change: I only have just one option, so...

Speaker Change: So, the canal authorities have been in dialogue with LNG players to try to find a system that incentivize them to use the canal more, but we still see that people just don't.

Speaker Change: You know, they don't like the rigidity and also there are costs associated with using the Panama Canal. If you have a lot of slack in your program, for example, you

Speaker Change: have a commitment to deliver cargo, you have a natural boil-off. So kind of some of the fuel here is sunk cost. So if you are using the Panama, you're paying them the toll, you go through, you come to China and then you are waiting for 10-14 days in order to discharge, you will not stop

Speaker Change: the boil off, so you have to kind of consume that.

Speaker Change: And then...

Speaker Change: You know, it's not really any cost of going the longer route, you save the Panama fees.

Speaker Change: and you're just burning the same basically amount of LNG. There are some differences there because some ships have equipped relic system. We have four ships with a partial relic, three ships with the full relic. So if you have those kind of ships, very advanced ships, you can

Speaker Change: use the Panama, you can go to China, you can idle there and you can re-liquify part of the boil-off and then get that back to cargo to reduce your fuel. So it's really a bit also dependent on the specification of the ship in that trade.

Speaker Change: And then a follow-up to that, as we've seen more and more cargo going to Asia and also taking the long route through the Panama Canal. And also we kept a good hope.

Speaker Change: The ton-mile effect of that versus the fleet supply coming over the next... Yeah, so of course, in general, of course, we always like when...

Speaker Change: You have a pull to Asia, especially if you have a pull to Asia with congestion in Panama because, as I mentioned, these numbers in nautical mile.

Speaker Change: It really drives up the requirement for ships, so we've seen that now, and lately, often if you have ships from the U.S. going to Asia and not utilizing the Panama, they will typically use the Suez Canal, better weather and shorter route.

Speaker Change: Today, nobody is using that except for those.

Speaker Change: taken to Egypt, which has moved from being an exporter to an importer and then to Jordan. Just for that, no one uses the Suez Canal for transit, only for these two discs.

Speaker Change: Link to Russian buyers for Arctic 2 so so it's it's positive. We want this much

Speaker Change: LNG is the flow to Asia in general because it drives off the demand and that's one of the reasons why.

Speaker Change: I would say sport market has been surprisingly good this summer because we didn't really expect that much pull to Asia and then on top of that you have the Swiss crisis which also adds some extra ton mileage

Kalleklev, Knut Traaholt, Flex LNG Flex LNG Kalleklev Flex LNG Kalleklev, Knut Traaholt, Flex LNG Flex LNG Kalleklev Flex LNG Kalleklev Flex LNG Kalleklev

Speaker Change: Down to Europe and EU ETS.

Speaker Change: How do you see that play out for the modern two-strokes versus the steamers and the tri-fuels? I can start with the question. You are more in charge of the implementation on our side for it, but I can just give you some broad ideas. So, of course, for this year,

Speaker Change: Ships trading into Europe will have to buy CO2 carbon permits, or basically ETS.

Speaker Change: to for the emissions they are creating. And of course this is being implemented over a couple years with a higher threshold you have to buy every year. Eventually this will be 100%

Speaker Change: of the kind of documented emissions you have on 50% of the trade. So, if you're going from US to Europe, there's two legs in that trade. It's the laden leg and then it's the ballast bag.

Speaker Change: So that's why you're getting to 50% because you are 50% in Europe and 50% in the US, which don't have this ETS.

Speaker Change: So, the price of this EU ETS, of course, is volatile, it can be 100 Euros or 60 Euros. So, you have to measure that kind of emission you are creating, and then...

Speaker Change: It's not offsetting it because it's not a carbon offset, but you have to pay for that permit of the documented CO2. So that will create a cost of emissions, which I think is the best way of dealing with

Speaker Change: Global Warming. If people pay for it, they have a real monetary incentive to do it. Much better than having bureaucrats making a lot of rules and giving out a lot of subsidies.

Speaker Change: better put the price on it and

Speaker Change: behavior will change.

Speaker Change: So we are generally in favor of this. We like our CO2 and we think it should be implemented more worldwide. It will be a competitive advantage for us, as I said.

Speaker Change: We have a fuel consumption per ton cargo transported about 58% lower than a steamship. That means the steamship has to buy a lot more of these carbon credits in Europe to offload.

Speaker Change: Not offset, but to pay for the permit of emitting.

Speaker Change: First, we have the steam discs, economically, as I mentioned on the fuel consumption. They are small, and then we have this carbon penalty on top. Generally speaking, we like it, it's good for us, and Knut here has been...

Knut Traaholt: in charge with adapting our time charters because this is not our cost.

Speaker Change: So we, this is of course pass-through, we gross up on these taxes, so this is for the charters account, which has to pass it on to the consumer who eventually pays for this.

Speaker Change: So that means all our time charters, the other time charters, the time charters

Speaker Change: We get, say, a fixed fee, we run the ship and they will pay for all costs associated with that thread being Panama Canal ports.

Speaker Change: and Fueled.

Speaker Change: So, we guarantee a fuel consumption and that is what we allow to utilize and then when taxes come on top of it, taxes related to the trade, they will also pay for that, so we implemented that so that we are sending them documents, this is the CO2 we are emitting, this is the CO2 we have to buy, here is the invoice, please.

Speaker Change: either refund us or provide us with those carbon credits so we can hand them over to EU organ in charge of this.

Speaker Change: Or do you have something to add then? No, I think we are doing the reporting and we are posting this on to our charters as long as we are on a time chart debate.

Slight gear, political question, U.S. elections. Do you see how that will impact the LNG market, and I assume here in particular the permitting process in the U.S.? I think, of course, if Trump wins, it will have the positive effect for LNG that we think this moratorium will be listed very quickly. Of course, there's a judge already in Texas who have decided that this is not allowed. So, of course, that decision in a court in Texas don't really will affect this. But I think if Trump wins, it will be repelled quite quickly. If Harris wins, it will take some more time. But I think in any event, it will happen. They kind of put this in January in order to attract more votes from green votes. This is a good case for them, especially after permitting oil drilling in Alaska. They had to do something and this looks good on a tweet or whatever. And then, eventually, there's so much gas in the U.S. This can create so many jobs that, you know, we do think that the reason will prevail. And eventually, they will slowly say that, okay, you can start issuing permits again. And of course, there's a lot of pressures from ordinations as well to on U.S. politicians to allow this. Both allies in Europe and Japan are pressing on U.S. politicians to repel this moratorium. And I think that will happen regardless. And once that happens, a lot of these projects have been filling up with new LNG of tech agreements. So, once they've listed, they are more or less ready to go and will kick off the next wave of U.S. LNG. Then, we'll round up a couple of questions on flex and strategy. How do you view the outlook for growing the fleet and the company being M&A second and toneage in new buildings? Yeah, I thought you were going to say how to spend it. That's usually... Now, as we said repeatedly, we are truth in ships. The last ship we got delivered was May 30th, 2021. Flex vigilant. So, of course, we are happy to grow, but we have to grow profitable. We're not going to grow just to have a bigger fleet and our bigger revenues. It has to be a creative... It has been hard to find good growth prospects in the last couple of years because of this skyrocketing new building prices. Going from the low when we purchased the ship at 180 to 260, so it's a very big ramp up in prices. Not only have the prices gone up, but also lead time gone out, from 2.5 years to certainly 4 years. And that costs a lot of money when interest rate is about 5%. So, I just have to repeat what we said in the past. I think we've demonstrated for some time now that we are not going to pay to grow. We're going to do a discipline. Right now, I think the order book is already so sizable that we don't really need more orders. And I don't find it very attractive. 260 million having to wait to 2028. I don't find that attractive compared to paying dividend in this period of time.

Speaker Change: Slight geopolitical question, U.S. elections.

Speaker Change: Do you see how that will impact the LNG market and I assume here in particular the permitting process in the in the US? Yeah, now I think of course if Trump wins it will have the positive effect for LNG that We think this moratorium will be lifted very quickly. Of course, there's a judge already in Texas who have decided that this is not allowed

Speaker Change: So, of course, that decision in a court in Texas don't really affect this, but I think if Trump wins...

Speaker Change: It will be repelled quite quickly. If Harris wins, it will take some more time. But I think in any event, it will happen. They kind of put this in January .

Speaker Change: in order to attract more votes from kind of green votes. This is a good case for them, especially after permitting oil drilling in Alaska. They had to do something and this looks good on

Speaker Change: A tweet or whatever, and then eventually there's so much gas in the US, so this can create so many jobs that you know

Speaker Change: We do think that the...

Speaker Change: Reason will prevail and eventually they will slowly say that, okay, you can start.

Speaker Change: issuing permits again. And of course, there is a lot of pressures from other nations as well on US politicians to allow this. Both allies in Europe and Japan are pressing on US politicians to repel this

Speaker Change: moratorium and I think that will happen regardless and once that happens a lot of these projects have been filling up with new LNG offtake agreements so once it's lifted they are more or less ready to go and will kick off the next wave of US LNG.

Speaker Change: Then we'll round up a couple of questions on flex and strategy. How do you view the outlook for growing the fleet and the company being M&A, second and tonnage in new buildings?

Speaker Change: I thought you were going to say how to spend it. That's usually a question we get. Now, as we said repeatedly,

Speaker Change: We are 13 ships. The last ship we got delivered was May 30, 2021, Fex Vigilant. So, of course, we are happy to go, but we have to go.

Speaker Change: Profitable.

Speaker Change: We're not going to grow just to have a bigger fleet and bigger revenues. It has to be a creative. It has been hard to find good growth prospects the last couple of years because of the skyrocketing new building prices.

Speaker Change: I'm going from the low when we purchased the chip at 180ish to 260 so it's a very big ramp up in prices. Not only have the prices gone up but also lead time gone out.

Speaker Change: from two and a half years to suddenly four years. And it costs a lot of money when the interest is around 5%. So I just have to repeat what we said before.

Speaker Change: I think we demonstrated for some time now that we are not going to pay to grow. We're going to do it disciplined. If we find, right now I think the order book is...

Speaker Change: already so sizable that we don't really need more orders. And I don't find it very attractive, 260 million having to wait to 2028. I don't find that attractive compared to paying dividend in this period of time.

So I think we need to, if we are to go, it's more natural to do that through consolidation. We are the world's biggest listed LNG shipping company by far. We have a modern fleet, we have a good track record, more or less all the ships or the LNG ships in the world. It's about 650 on the water, 350 on the construction, that's 1000 LNG ships. Almost all of them are on privately. We have 13 ships, cool co-op 13 ships, I will go as 12 ships. The rest of the ships are in private hands. If you are a private owner, you have a good fleet, you want to go public, cash in, have a better position, having a stock rather than a private ownership, you should reach out to us, don't call Morgan Stanley or JP Morgan, they will charge you a hefty fee to take your company public, rather call us and we can maybe consider giving you some shares and flex for the ships you have in your private account. Then there's a question on balance sheet optimization and what you can expect going forward, other more in the pipeline. I guess I can take it on the two financing we are announcing today is basically triggered by the 500-day extension on the contract which is in here and also availability of an attractive financing package in Japan. Concluding that, that means that we also then have to address the two other vessels or have the opportunity to address them as they are fairly low-leveled. This was the first transaction we did in the balance sheet optimization program for the bank financing so they have amortized and values as also improved with the banking market so that concludes those three ships. As you also saw we are then also in discussions with some of the banks to convert a term loan tranche to an RCF so we maintain our 400 million dollar of the billet or non-amortizing RCF capacity. For a next refinancing, that will most likely be subject to contracts and the long term contracts and the availability of attractive financing. We are very pleased with the package we have today and also I want to mention that with the process and look forward to expand business with as well. So for now we are able to trigger for more refinancing is probably a new contract. I think it has to be interest rate derivatives optimization which is next. Now we have run through a way ahead of Fed we started doing a lot of swaps early 21-22 when rates were low while I had of a year before Fed started to hike rates. That trade has generated 127 million dollars of profits since 2021. We have monetized and crystallized most of it. I believe balance sheet now is around 35 million of unrealized gains so 127 million so most of the gains have been realized in crystallized.

Speaker Change: So I think we need to

Speaker Change: If we are to grow, it's more natural to do that through consolidation. We are the world's biggest listed LNG shipping company by far. We have a modern fleet, we have a good track record.

Speaker Change: more or less all the ships or the LNG ships in the world about 650 on the water, 350 on the construction, that's 1000 LNG ships almost all of them

Speaker Change: are owned privately. We have 13 ships, Kulko has 13 ships, Avilco has 12 ships. The rest of the ships are in private hands. If you are a private owner, you have a good fleet.

Speaker Change: You want to go public, cash in, have a better position, having a stock rather than a private ownership, you should reach out to us, don't call Morgan Stanley or J.P. Morgan, they will

Speaker Change: We can charge you a hefty fee to take your company public, rather call us and we can maybe consider giving you some shares in flex for the chips you have in your private account.

Speaker Change #100: Then there's the questions on balance sheet optimization and what you can expect going forward. Are there more in the pipeline?

Speaker Change #101: I guess I can take it on the two financing we are announcing today is basically triggered by the 500-day extension on the contract with Cheniere.

Speaker Change #101: and also availability of an attractive financing package in Japan.

Speaker Change #101: Um...

Speaker Change #101: Concluding that, that means that we also then have to address the two other vessels, or have the opportunity to address them, as they are fairly low-levelled. This was the first transaction we did in the balance sheet optimisation programme for the bank financing. So they have amortised and values have also improved.

Speaker Change #101: with the banking market. So that concludes those three SIPs.

Speaker Change #101: As you also saw, we are then also in discussion with some of the banks to convert a term loan tranche to an RCF, so we maintain our $400 million of the bullet on non-amortizing RCF capacity.

Speaker Change #102: For a next refinancing, that will most likely be subject to contracts and the long-term contracts and the availability of attractive financing.

Speaker Change #102: We are very pleased with the package we have today, and I also want to mention that with the Jolko we are introducing a new bank to us, which we are very pleased with working with in this process and look forward to expand business with as well.

Speaker Change #102: So, for now we are able to trigger for more refinancing, it's probably a new contract.

Speaker Change #103: Yeah, I think it has to be interest rate derivatives optimization, which is next. Now we have run through, we were way ahead of Fed, we started doing a lot of swaps early 21, 22 when rates were low, well ahead of a year before Fed started to hike rates.

Speaker Change #104: That trade has generated $127 million of profits since 2021. We have monetized and crystallized most of it, I believe.

Rezano picking down again. We have plenty of trading limits. So we will be opportunistic to have to see if there are levels which are attracted to lock-in a higher hedge ratio. We have been anticipating a pivot from Fed, picking of hedge ratio and Q2. Long term interest have fallen on lots since the employment figure in U.S. One and a half two weeks ago. So we will monitor that development and see if there are opportunistic hedge rates at attractive levels as they have been going down quite a lot recently. Typically we try to use windows where there are distressed in the market like Silicon Valley Bank full collapse. Secure good terms for all shareholders. That's concludes the Q&A announcement of who is the Flex Kit. You can have a look at the name. We have one very active shareholder investor asking questions and it's a number of questions reaching all of the topics and it's Patas Veeund. Then you will have the Flex LNG Kit. Before concluding that, I just want again thanks to the technical team and our crews who have done fantastic once again, fantastic dry docking of consolation and courageous. It's the sixth dry docking we have done. No, the last two years are actually one and a half year, all according to time and budget. So we're very happy with that, very high technical quality on our team. And then we will be back in November with our Q3 numbers which we have guided today so we don't expect any surprises in November and in the meantime you can enjoy the 75 cents per share of dividends which I think will be payable at the end of the month. Okay, thank you everybody for listening in. Thank you.

Speaker Change #104: balance sheet now is around 35 million of unreliable gains, 127 million so most of the gains have been realized and crystallized

Speaker Change #104: Rates are not picking down again. We have plenty of trading limits. So we will be opportunistic to have to see if there are levels which are attracted to lock in a higher hedge ratio. We have been anticipating a pivot from Fed, peaking our hedge ratio in Q2.

Speaker Change #104: Long term interest rates have fallen a lot since the employment figure in the U.S.

Speaker Change #104: One and a half, two weeks ago. So we will monitor that development and see if there are opportunities to hedge rates at attractive levels as they have been.

Speaker Change #105: going down quite a lot recently. And typically, we try to use windows where there are distress in the market like when Silicon Valley Bank collapsed to secure good terms for our shareholders.

Speaker Change #105: That concludes the Q&A.

Speaker Change #106: announcement of who wins the flag kit. Yeah, you can have a look at the name. We have one very active

Speaker Change #107: shareholder investor asking questions and it's a number of questions reaching all of the topics and it's Patta Sveund. Okay, then you will have the Flex LNG kit.

Speaker Change #108: Before concluding then, I just want to again thanks to our technical team and our crews who have done fantastic, once again, a fantastic dry docking of Constellation and Courageous. It's the sixth

Speaker Change #109: Fire docking we have done now the last two years, or actually one and a half years.

Speaker Change #109: All according to time and budget so we're very happy with that very high technical quality on on our team And then we will be back in November with our Q3 numbers which we have guided today So we don't expect any surprises in November and in the meantime you can enjoy

Speaker Change #109: The 75 cents per share of dividends, which I think will be payable at the end of the month.

Speaker Change #109: Okay, thank you everybody for listening in.

Speaker Change #110: Thank you.

Speaker Change #111: [inaudible] The Lord, the Lord, the Lord, the Lord, the Lord.

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