Flex LNG Ltd. Q3 FY2022 Earnings Call

Hi, and welcome to FLEX LNG's Third Quarter Presentation. I'm Oystein Kalleklev, the CEO of FLEX LNG Management, and I will be joined by our CFO, Knut Traaholt, who will run you through the numbers a bit later in the presentation. Following the presentation, we will have a Q&A session where you can either use the web chat function or send an email to [email protected]. If you have any questions, we will answer some of the questions in the Q&A session following the presentation. Before we begin, we just want to highlight our disclaimer regarding forward-looking statements and the use of non-GAAP measures, and there are limits to the completeness of detail we can provide in this presentation. So please, review our earnings release together with this presentation. So let's start with the highlights. Revenues for the quarter came in at $91 million, which was in line with our previous guidance of $90 million. Earnings were strong. Net income and adjusted net income were $47 million and $42 million, translating into earnings per share and adjusted earnings per share of $0.88 and $0.79, respectively. During the quarter, freight and product markets were booming, and this affected both short-term and long-term rates positively. During the quarter, we had three ships commencing new Time Charters. Flex Enterprise and Flex Amber commenced new seven-year Time Charters, which we announced in June, replacing the shorter-term Time Charters we had for these ships prior to this announcement. We also had Flex Aurora, which was delivered as the final fifth ship to Cheniere at the end of the quarter. Our CFO, Knut, has been busy refinancing ships, and we have recently secured $630 million of refinancing for four of the seven ships we intend to refinance. With these refinancings for only these four ships, we are already surpassing the $100 million target we set in terms of cash release. These four ships altogether will release around $110 million. So for phases one and two, we today expect to release a minimum of $300 million of cash release, and Knut will give some more details on this shortly. For the fourth quarter, we expect slightly better numbers, driven by Flex Artemis, which is the only ship we have on a variable higher Time Charter. With spot markets booming, we are also making more money on this ship. So revenues for the fourth quarter are expected to be somewhere around $95 million to $98 million, also in line with our previous guidance of $90 million to $100 million. We have third contract coverage for 2023 and a minimum coverage of 91% for 2024, as we have two ships rolling off charters in the middle of 2024. There are, however, options by the charter to extend these ships, so the first fully open ship we have available today is actually in the middle of 2026. With strong contract coverage, strong financial results, and a healthy cash balance, our Board has therefore declared our quarterly dividend of $0.75 per share. So far this year, that means we have declared $2.75 per share in dividends, which is also in line with our earnings per share of $2.76. If we add Q4, we have paid $3.5 in dividends for the last 12 months, which implies a yield of around 10% with today's stock price. So as I mentioned, we have very good coverage. As you can see from our fleet overview, we have two ships that could possibly come open in 2024. But as I mentioned, there are options by the charters to extend these ships. The first fully open ship is Flex Vigilant in 2026, and we also have three ships coming open or fully open in 2027. We believe this is very good timing. There is a lot of LNG coming to the market in this window. With newbuilding prices going up to the range of $250 million, we do think that these ships will be attractive for recontracting at hopefully even better rates than we have today. As you can see, Flex Artemis, the one ship with a variable higher structure, is just lagging in our revenues for Q4 this year. Dividend, as I mentioned, holds no big surprises. A consensus to estimate for our dividend this quarter is also $0.75, bringing the last 12 months dividend amount to $3.5 in total. We have gone through our decision factors for how we are planning our dividend in detail during the last couple of quarters. As you can see here, there are a lot of green lights; our earnings are strong, the market outlook is good. As I mentioned, we have a very strong backlog. Our cash position today is $271 million. With the balance sheet optimization program, we expect this cash pile to grow even further. Covenant compliance, we are flying with a green flag. We don't have any upcoming debt maturities. We don't have any CapEx liabilities except ordinary drydocking for the ships. So it's no problem paying out this dividend for sure. We are also, after several requests by shareholders, introducing our dividend reinvestment plan, so those people who like to reinvest their dividends in new FLEX LNG shares will now have the opportunity to do so. Looking at our P&L, you will see a big number for this year, which is $75 million, which is our gain on interest rate swaps so far this year. We also made $18.4 million on interest rate swaps last year. In total, we have actually made $93 million on interest rate swaps since 2021. Why is that? During our Q4 presentation in February 2021, we focused on a couple of factors impacting our business. One, of course, the trade war. There was a significant trade war between the US and China. This resulted in cargo flows from the US to China drying up during 2019, and the flow of cargos from the US to China didn't really resume after the phase one trade agreement was agreed upon between China and the US in January 2020. We also have deglobalization, which has been a factor for a lot of different industries. This has not really been the case for LNG, as we see more and more countries entering this industry, both on the import and export sides. COVID-19, of course, was a significant focus in early 2021 in Western countries. We have mostly put this behind us, but this has impacted China's LNG demand quite a lot, with their imports this year being down 22%, which has been fortunate for Europe facing a gas shortage. The energy transition remains a very relevant question. Making coal history is a goal that economies have put forth, but this has not really been the case, as coal consumption has increased significantly due to energy shortages. ESG is also a focus for us. We are expanding our ESG reporting. We have our annual ESG report according to the Sustainability Accounting Standard Board, where we are also implementing the Global Reporting Initiative. We are now also finally disclosing our numbers for the Carbon Disclosure Project, which will be available with a score in early December this year. The last factor driving our interest rate swaps has been the ample money supply. Back in February 2021, we stated that one of the big drivers here is the ample liquidity and the money printing. The remedy, as we said for COVID-19, involved large-scale fiscal and monetary stimulus, unprecedented in scale, and we are now starting to see the effects of this. We asked whether this would result in higher inflation and whether the debt super cycle would be replaced by a commodity super cycle. We stated that we weren’t overly concerned, because usually in a commodity super cycle, energy and commodities perform well, and shipping is part of that value chain. Regardless, with interest rates at rock-bottom levels, while inflation was picking up and fiscal and monetary easing was being pushed forward on an unprecedented scale, we felt it was prudent to take more coverage for the effect of higher interest rates, which resulted in huge gains for us. Looking back at what has been occurring since we presented this vision in February 2021, it has closely followed our expectations. It actually began already in March 2021 with the big fiscal stimuli instituted by President Biden through the COVID relief package; the Build Back Better plan was, however, reduced by Congress. We also observed the energy shock emerging ahead of the Russian invasion of Ukraine. By late October 2021, economists began alarming about the energy shock as Europe was entering a winter with very low gas inventories, driven by the fact that Russian flows were being constrained. This resulted in gas prices in Europe doubling from $30 to $60 per MMBtu in early December 2021, an unprecedented level at that time. In February 2022, the markets grew anxious that this inflation would not be transitory. However, on February 24, 2022, Russia invaded Ukraine, resulting in a market rout and a flight to quality, with long-term interest rates falling significantly. We actually doubled down on our bets and entered into $200 million more interest rate swaps for 10 years at a low rate of only 1.7%. With the war in Ukraine, we understood that a lot of supply shocks were affecting multiple shipping segments and the energy sector, and undoubtedly, energy security—previously a dormant policy—returned to the fore due to vulnerabilities observed after the war began. We also saw that the market began to recognize that the Federal Reserve was falling behind the curve. Finally, in March this year, the Federal Reserve began to increase interest rates, first by 25 basis points, then 50, and culminating in significant hikes of 75 basis points, driving the Federal Reserve's policy rate from 0% to somewhere between 3.75% and 4%, with expectations that these rates may peak around 5%. Naturally, this has also driven the mark-to-market gains on our swaps. Politicians are beginning to grasp the intricacies of energy, recognizing it's not a simple solution, but rather a dilemma concerning emissions, affordability, and security. We see growing realism among policymakers on how to make the energy markets function. Lastly, I would highlight that our initial concern regarding gas shortages in Europe this winter has not materialized, due to a fortunate confluence of factors, including supply from LNG and favorable weather conditions. I will return to this in my market presentation. If you seek more insight into energy markets and the winter's implications, I recommend the 'Mark to Market' podcast where our new board member, Susan, and I recently discussed the LNG markets in more detail. With that, I will hand it over to you, Knut, for our financial review.

Thank you, Oystein. Let's look at the key financial highlights for the quarter. In the third quarter, we delivered revenues of $91 million or TCE of $76,000 per day. The increase in revenues is explained by the three Time Charter contracts mentioned by Oystein and somewhat higher earnings under the variable higher contract for Flex Artemis. Operating expenses of $17 million for the quarter or OpEx per day of $14,600. The OpEx is higher than the guided level of $13,000 per day and is explained by still higher COVID-related expenses, crew changes, and extended handovers. Going forward, as restrictions are lifted, we expect the COVID-related costs to gradually decrease. With the extended handovers we have already performed, this cost should taper off, and we should return to normalized levels. Interest expenses this quarter are higher due to the increase in interest rate levels, but it is mitigated by our derivative portfolio, and I will return with more details on the derivative portfolio later in the presentation. This quarter, we have an extinguishment cost of debt of $13 million, which is related to the refinancing of the Endeavor and Flex Enterprise leases, where the purchase option price is higher than the book value of the debt. If we reconsider the total refinancing of these two vessels, these costs will be recouped in approximately two years as the new terms are more attractive. This gives us a net income of $47 million or earnings per share of $0.88, and an adjusted net income of $42 million or $0.79 per share. If we look at our balance sheet of $2.6 million, that is the 13 vessels, state of the art LNGCs with an average age of three years. As a reminder, these vessels' book values reflect that they were acquired at the low point in the cycle. We have a robust cash balance of $271 million and equity of $890 million, giving us a book equity ratio of 34%. Looking at the cash flow for the quarter, the main contributor is cash flow from operations and working capital. We paid $26 million in repayments, which is, as a reminder, in Q1 and Q3, we paid somewhat higher amortization due to a semi-annual repayment schedule under the ECA facility. During the quarter, we realized some of our swaps resulting in a gain of $9 million, and we have our dividend for the last quarter which required a payment of $66 million, which included $26 million in a special dividend. So at the end of the quarter, we had $271 million on account. If we look at our interest rate portfolio, we continue to manage that actively. During Q3 and Q4, we have amended and terminated swaps. The notional value of our spot portfolio today is $641 million. In combination with the fixed interest rate leases, we have a hedge ratio of about 47%, excluding any utilization of the RCF. The amendments we have made include terminating a number of swaps, as we see here in Q3, which released $9.3 million, and this continued into Q4 when the interest rate levels were high, leading to terminations that realized $14.4 million. The plan for the use of this cash is to maintain it on account to continue servicing that interest going forward. We have also amended longer duration swaps and made them shorter. Therefore, we now have a total balance of both cash leases and swaps, which will protect us against higher interest rates going forward. If we look at our optimization program and phase two, we are pleased to announce that we have met our $100 million target. We have commitments for financing, which will release $110 million. This includes leases and bank facilities, and we also invite new banks to our banking group, expanding our geographical diversity from which we can raise financing. This financing meets all of our priorities. Currently, we have about four vessels remaining for refinancing where we see potential to further release up to $100 million. In the financings that we announced today, during the Q2 presentation, we indicated a financing for the Enterprise. Today, we can announce that it has been signed, documented, and drawn by the end of Q3. It's a $150 million facility with a margin of 170 basis points and a tenure, which is back to back with the contract. Today, we also announce a new bank financing for Flex Resolute, also $150 million with a margin of 175 basis points, with similar tenure back to back with the contract, and that is expected to be documented and drawn ahead of Q4. We also announced two leases for the Flex Artemis and Flex Amber with a combined margin of 215 basis points, totaling a 12-year tenure with an average repayment profile of about 22 years. We are very pleased with this financing, and we are now considering financing for Flex Rainbow on the back of the 10-year contract, which can also include Flex Aurora as a replacement vessel for the financing concluded earlier this year for Flex Rainbow. We are also evaluating options for Flex Freedom and Flex Vigilant, and we will report on that as soon as we have more news. This concludes the overview of what we are planning to do under the balance sheet optimization program. We are fortifying the balance sheet as we now have a stable contract portfolio with long duration. During phases one and two, we free up capital while maintaining RCF capacity, so the carrying cost of the cash we release is low. With new financing, we aim to increase our RCF capacity, which will support the journey of FLEX LNG going forward and safeguard us through these cycles. With that, I hand it back to Oystein.

Okay. Thank you, Knut. Let's go back to the market. LNG exports during the first ten months of the year have increased by about 5%, predominantly driven by the US, despite the shutdown of Freeport, which is now expected to resume exports early next year. US exports continue to grow by 11% or 6 million tons. Russia, despite all the sanctions and the curtailment of pipeline gas, has seen LNG export growth continue, with a 12% increase in the first twelve months, adding 3 million tons. We also have 3 million tons from Malaysia with a growth of 13% and 4 million tons from various other markets. If you look at the import side, it's not surprising that Europe is absorbing a significant amount of the LNG. They are basically importing all the growth in the market as well as the shortfall in demand from other countries. The most notable is China. As I mentioned, due to COVID restrictions and lockdowns still ongoing in China, LNG imports from there are down 22% this year. The high price of LNG is also pushing countries like Bangladesh, Pakistan, and India to turn to coal and other feedstocks for their energy demand due to the expense of LNG. This demand destruction in other nations, coupled with the growth of the LNG market, has really supported Europe this year, enabling them to increase LNG imports by 37 million tons or 57% in the first ten months of the year. The gas consumption share in Europe has been influenced by several factors. Firstly, high prices are encouraging energy savings, which we have observed particularly in the industrial sector. Although many households are still being subsidized, disincentivizing energy savings. Overall, gas consumption in Europe is down 12% this year, also driven by a very mild start to the winter in October. As noted, all major European countries experienced a mild start to October, and this trend has continued into November. The current demand for gas in Europe is down, and with an influx of LNG arriving at European import terminals, one could say we are now, in the middle of November, at virtually full gas storage levels in Europe. This situation is creating further bottlenecks, and this is occurring despite the significant reduction in Russian pipeline gas flows. We have seen these flows tapering down, and with the explosion at the Nord Stream pipelines, it has become a reality that only very small quantities of gas are being exported to Europe, ironically enough, through Ukraine. Concerns about energy or gas shortages in Europe this winter seem to be alleviating because European gas inventories are sufficient to cover about seven weeks of winter demand. However, next year, Europe will face a more challenging task. This year, the problem has been somewhat resolved by a surplus of LNG, which has entered Europe, alongside a reduction in demand from other regions. Simultaneously, Europe has been fortunate that China has been shut down and not competing for LNG spot cargos. The critical question moving forward is how much Russian pipeline gas will be available for Europe next year. On the right-hand side of the graph, we analyze the change expected in Europe's gas balance capacity next year. There remains uncertainty regarding 35 million tons of LNG equivalent gas from Russia coming into Europe. This will necessitate Europe to import even more LNG, yet there might not be 35 million tons available on the market. This could lead to increased competition in the market and is projected to result in a challenging winter for European consumers in '23-‘24. Therefore, it's not surprising that gas prices remain high in Europe. In the US, where shale resources are abundant, prices have calmed down to much lower levels compared to European import nations. We see the TTF rates for the Dutch gas hub along with the Northwest Europe delivered ex-ship LNG prices reflecting this dynamic. The surplus of LNG entering Europe has caused shortages at import terminals, leading to discounts for LNG prices compared to pipeline gas prices. Right now, we observe a contango in gas prices due to full inventories and the mild weather conditions we are experiencing. Of course, the winter won't remain mild for the entire season. As temperatures drop, gas consumption will increase, which again raises prices for future deliveries above current market rates. This is encouraging floating storage of LNG. Currently, we have observed an all-time high of around 40 ships tied up in floating storage, impacting availability in the spot market, making the freight market very tight. The spot freight market has been on a bullish run so strong that we have made changes to access on a logarithmic scale. We transitioned from a slump over the summer to a strong rally in the spot freight market. However, the Freeport shutdown caused the market to dip, as we saw more vessels tied up in floating storage. This has ultimately driven spot freight rates up to extraordinary levels, peaking at around $0.05 million per day and above previous seasonal records. Nevertheless, such high rates reflect a scarcity of available ships in the market. Consequently, the number of spot fixtures has decreased significantly, mainly as more fixtures are being completed via relets, allowing charters to optimize shipping schedules to reap higher profits for shorter-term voyages. We have also noted recovery in long-term markets, spurred by higher newbuilding prices, compounded by inflation pressures affecting yard capacities that are already overbooked with LNG ships as well as container ships. As a result, the newbuilding price has surged from $180 million to $250 million. Therefore, this translates to $70 million per ship increase, culminating in $900 million across our entire fleet of 13 ships within a short timespan. This increase in costs also necessitates higher charter rates. For example, 5-year time charter rates for pump deliveries are now exceeding $130,000 per day. However, there remain limited availability of ships for pump service. We also need to focus on LNG flow projects currently being sanctioned for green lighting new capacity. There is an ongoing competition among export projects vying for authorizations to add new LNG supplies to the market, particularly since the recent loss of Russian pipeline gas to Europe must be compensated by increased LNG exports. So far, Europe’s been fortunate to procure spot cargoes in segments while China has been largely absent from the market. However, as China returns, we anticipate more demand from them, reinforcing the necessity for additional LNG supply in the market. In fact, we observe that the Chinese are entering into new LNG contracts. Hence, we expect limited volume growth this year, followed by further muted increases in the coming years, but anticipating significant ramp-up for '25 and '26 onwards once various new projects are sanctioned. This suggests favorable timing for our ships scheduled to become open in '26 and '27. Thankfully, we don't bear many market exposure risks during '23 and '24 when volume growth is muted, minimizing potential adverse impacts from diminished ton mileage growth. Notably, while ton mileage currently stands down, the freight market remains vibrant due to our strong position amid congestion and floating storage. In summary, revenues of $91 million aligned with guidance. We expect earnings to improve in Q4, driven by a stronger spot market, with revenues anticipated to be around $95 million to $98 million, again in line with previous guidance. This quarter, we delivered earnings of $47 million, or $42 million on an adjusted basis, equating to earnings per share of $0.88 and $0.79, respectively. We are actively engaged in refining our financing options. As Knut indicated today, we have secured refinancing for four of our LNGs, surpassing the $100 million target for our balance sheet optimization phase two. Together through phases one and two, we expect to release more than $300 million of free cash for refinancing our fleet while also improving our financial terms and tenures. We remain firmly covered for 2024. Our strong coverage positions, combined with solid financial results, yield confidence that we will secure new long-term employment at potentially better rates than those we enjoy currently. So, perhaps it’s no surprise we are declaring another $0.75 ordinary quarterly dividend. This brings our dividend total for this year to $2.75 per share and $3.5 for the last 12 months, resulting in a high yield of around 10% with our current stock price of approximately $34. Thank you; that concludes our prepared remarks for today. We will now conduct our Q&A session in which both Kunt and I will participate. I hope you've all sent in thoughtful questions. Thank you.

We are ready for some questions. We have about 20 questions before heading to the airport for investor meetings in New York. If you are in New York, we'll be at the Marine Money Conference on Thursday discussing LNG and shipping strategy. We hope you can join us if possible. This time, we received a lot of questions, thanks to a competition offering giveaways for the best queries, which has generated a lot of interest. We also have some gifts for those who asked the best questions. First, we have FLEX LNG shades, and if those aren't enough, we also have a cap for you, Knut. Would you like to try it on? Additionally, we want to emphasize that safety is our priority, so we also have Flex reflexive bands. Now, let's find out who our giveaway winners are this time. Yes, as you mentioned, we've received plenty of questions. We will begin in the same fashion as last quarter, with a question from Omar Nokta from Jefferies. He begins with the index-linked vessel, the Flex Artemis. Can you remind us of how the earnings are calculated? I gather there is a ceiling around 100,000 on a floor of about 50,000 per day.

It's much easier. Before we had more ships on the index; now we only have one ship on index. But still, we get a lot of focus on this. So, charter hire is tied to the spot market. There is a ceiling and a floor, and we have communicated that the floor corresponds with our cash breakeven level. The ceiling, however, is notably higher than 100,000. Keep in mind we are generating $91 million in revenues in Q3; we estimate this will increase to $95 million to $98 million for Q4. For the spot ship, the revenues were already pretty robust. When we say earnings are increasing by $5 million to $7 million, that's based on 92 days in Q4—for that, we anticipate growing the revenues for that ship somewhere around $50,000 to $60,000 per day. Thus, the ceiling is considerably higher than 100,000. I won’t comment specifically on competitive reasons.

He follows up with a question regarding the vessels coming open in 2026 and 2027. What is the charter interest surrounding those vessels, and do you have any indications regarding the rates and duration?

There's substantial interest. Remember, the first available ships you can acquire are for ‘27, and yard bookings are filling up quickly. Hence, we anticipate prices for the 2028 contracts could soon come into play at elevated rates. Given that interest rates are higher, we have hedged a lot of that risk, meaning that charterers will require a solid ROI; therefore, they’ll likely need ten to twelve-year time charters at starting rates of maybe 90. Consequently, as shown on the graph, long-term rates are significantly picking up, and we believe we can benefit from this trend. We possess the same ships as MEGI X-DF models, which are fuel-efficient. Thus, we can offer greater flexibility regarding the duration of time charters because we have ships coming available during that window. I think we can secure better rates than we currently have.

There are multiple questions concerning fleet development. How do you plan to grow the fleet? Do you have newbuilding plans, plans to expand into FSRUs, or plans for consolidation?

Yes, we seem to get this inquiry every quarter. What we’ve communicated is that we want to be disciplined. We have ships scheduled to become available in '26 and '27, slightly ahead of newbuilding deliveries. Additionally, we've observed that LNG export volumes are expected to grow significantly, albeit after a period of muted growth from '22 to '24. Hence, our focus centers on securing employment for our existing fleet, which is paramount. We aim to achieve good returns on equities so we can pay dividends. We remain open to growth but find that newbuilding prices are steep. By investing $250 million into a new ship, we would find it more challenging to maintain dividend payouts, as that capital could remain idle until late 2027—leading to essentially no returns. Moreover, lost dividends during these years also needs consideration. We’ve said in the past that we are open to consolidation. If suitable ships become available, we have the capacity to double our fleet size without needing to significantly increase our personnel count; we benefit from in-house management, which has delivered excellent results. Thus, we are open to pertinent opportunities. Regarding FSRUs, I think that market has been completely lifeless. It has only been revived due to Europe’s urgent need to enhance import capacity quickly. It’s beneficial for those who possess FSRUs. I believe there exists a conversion market for existing ships; however, our modern ships are mostly unsuitable for such conversions. There are around 160 older ships that present better candidates for conversion into FSRUs since they provide the required diesel-electric services. This could work to our advantage because the more ships that exit the existing fleet, the fewer ships competing for capacity. Any ship conversion to FSRUs intensifies demand for cargoes, which will be serviced by existing LNG carriers, including ourselves.

Moving to market queries, we have a question from Michael. How do you perceive Asia's ton-mile demand this winter given the high probability of La Niña?

Yes, it appears we are likely experiencing a triple dip La Niña this year, marking the third recorded occurrence of such an event. Typically, this causes colder weather, particularly in Asia, while theoretically it could also manifest in Europe, although the winter has kicked off rather mild. That being said, it’s too early to be certain about the weather trends. The winter could change at any moment. Should Asia undergo a cold snap, it could lead to a surge in imports as their storage capabilities are limited. Hence their LNG imports are typically reliant on just-in-time deliveries. We witnessed this in January 2021 when a cold snap in Asia resulted in a spike in cargo imports, thereby causing an exceptionally strong spot freight market for shipping during that period. Should cargo deliveries shift towards Asia, the corresponding ton mileage will increase, decreasing the concern about ships in floating storage liquidating their cargoes.

We have a question regarding operating expenses and the increase observed in Q3. Can you clarify whether this is the new operational benchmark?

I would say that the Q3 expenses incorporated persistent COVID-related costs, as well as quarantine and testing, which should taper off as we transition back to a more normalized environment, particularly in Asia. We have also seen a considerable number of crew changes and new signers, which have impacted some extended handovers, leading to higher costs. These costs should gradually return to the previously guided level of around $13,000 per day, which we are actively monitoring.

I’d also like to note that as we indicated in the presentation, inflationary pressures have been higher than anticipated. Not by us—we predicted this trend long before it started to rise. Fortunately, we benefit from a strong dollar as many of our seafaring expenses incur in local currencies. The strong dollar preserves purchasing power amidst inflation.

That brings us to our cash balance and refinancing in phases one and two, where we have released a significant amount of cash. What are your plans for the use of this cash?

You explained this well. We are currently in the best financing market I've encountered in years, reminiscent of conditions from 2014. For reputable clients like ourselves, the current setup is even more favorable than in 2014. However, for those with lower ratings, the financing climate is rather rough. Blue-chip clients like us should seize opportunities for favorable financing when available. We are pursuing this funding while also tying it to revolver agreements, as mentioned by Knut. This minimizes the holding costs associated with freeing up cash. This provides us both optionality and reassurance for our investors regarding the sustainability of our dividends over time, given our contract backlog, market outlook, and solid cash position.

We have practical inquiries regarding dividends, including the timing of the dividend payments. Regarding US investors on the New York Stock Exchange, the dividend will be paid on or about December 6 in US dollars, while investors on the Oslo Stock Exchange will receive theirs on or about December 9. Please refer to the press release for additional details.

Well, just in time for Christmas. So anticipate it and you can allocate it to gifts for family and friends.

However, we’ve also received inquiries regarding future guidance on dividends...

I’ve received some messages today wondering why we don’t declare a special dividend. We can't wheel out special dividends each quarter; that would transform them into ordinary dividends. What we have stated consistently is that $0.75 is a comfortable level to maintain over time, ensuring sustainability in the long term. When we achieved phase one of the balance sheet optimization, we secured $137 million in cash; our target was $100 million. We distributed $26 million as a special dividend. We are making good progress on phase two. Let’s see where things stand next year. We can’t guarantee the issuance of a special dividend; it will depend on the market and the opportunities available. What I will assert is that we are pro-dividend and enjoy paying them. We are shareholders ourselves and have a significant shareholder in the Fredriksen Group, who appreciates dividends as well. Therefore, we consistently payout near 100% of our earnings while considering possibilities for special dividends.

Speaking of our main shareholder, how involved is he in company decision-making?

Indeed, our main shareholder, John Fredriksen, is perhaps the most successful shipping investor of all time. Having been in this industry for sixty years, he’s experienced cycles that common interests may entail. Currently, he owns around 44% of the company. Consequently, he definitely possesses a vested interest in our performance. Thus, he is notably involved, and we find him a fantastic resource for advice as he has vast experience with both booms and busts. He is certainly engaged with our business.

To finish up, we have a question on Twitter regarding why the LNG and LPG markets have become detached, given that FLEX and Avance Gas management remain the same.

Thanks for your question. I look forward to seeing you wearing some FLEX gear shortly. Avance Gas, which I'm currently overseeing as Executive Chairman, alongside Marius Foss, our Chief Commercial Officer, who has a role in that company as well. Yes, these markets are detached, but there are some corresponding drivers. Specifically, shale gas has propelled the US to become the top LNG exporter globally. Yet, it's also the leading exporter of LPG. Approximately 50% of very large gas carrier cargos originate from the US. In contrast, LNG is proportionately modestly sourced there. Thus, while there are shared drivers, the LNG market operates more on a liner business model focused on logistics, whereas the VLGC sector is closer to commodity shipping, centered around capricious rates. This brings us to Avance Gas's nature, which is highly spot-oriented—a more eventful experience, potentially more volatility than in our LNG segment. Currently, residing in the VLGC market is lucrative as rates stand around $120,000, against a backdrop of considerably lower costs to operate vessels compared to LNG carriers. Thus, thank you for your question. We conclude our session today and look forward to our next quarterly presentation in February. Thank you very much for joining us.