Flex LNG Ltd. Q4 FY2024 Earnings Call

Hi, everybody, and welcome to Flex LNG’s Fourth Quarter 2024 Result Presentation where we will also go through the numbers for the full year. My name is Oystein Kalleklev. I'm the CEO of Flex LNG Management. And as usual, I'm joined by our CFO, Knut Traaholt, who will walk you through the numbers a bit later in the presentation. As usual, we will go through the financials. We will cover the market, and after the presentation, we will do our Q&A session. As usual, we have a gift for the best question. This time, it's for investors who don't want to get cold feet; we have the Flex LNG warm feet. So while our cargo is cold, at minus 162 degrees Celsius or minus 260 degrees Fahrenheit, our investors can have warm feet because we have a lot of backlog which can weather us through this difficult market in the LNG sector over the last couple of months. Before we begin, I just want to highlight the disclaimer. We will be utilizing some non-GAAP measures like TCE and adjusted EBITDA and adjusted net income. Those numbers are reconciled in our earnings report, also available today, and of course, there are limits to how much detail we can cover in the presentation. So let's begin with the highlights. Revenues came in at $89.5 million, in line with the guidance of close to $90 million. For those who have read the earnings report, you will actually see our revenues were $90.9 million. This is due to the EU ETS, the emissions trading system coming into force in 2024. We had income on EU ETS Carbon Emissions of $1.4 million in our charters. This is for the account of our charters. So we received $1.4 million from our charters in compensation for EU ETS, and then we also surrendered those to the EU. We have a corresponding cost of $1.4 million in our voyage expenses. So net freight income is $89.5 million, as mentioned, in line with the guidance. Net income was driven by a sharp increase in interest rates in Q4 after the election of Donald Trump. We had derivative income of $20.1 million; $5.1 million of the derivatives was realized during the quarter as a positive carry, resulting in adjusted net income of $30.8 million where we only include the realized gains and losses, not the unrealized gains and losses. That means our earnings per share came in at a healthy $0.84 or $0.57 on an adjusted basis. Recent events we were reporting back in November; we informed you then about the extension of two of our ships, Flex Resolute and Flex Courageous. They were at the beginning of 2024, these ships were extended from 2025 to 2027 where the charter has the option to extend those ships to 2029. In November, we announced that the charter has amended the charter where they have a new firm period for 2029 to 2032 with options all the way to 2039. So we are pretty confident these ships are at least gone until 2032, possibly a bit longer. Following our Q3 presentation in November, we also announced late November our new 15-year time charter for Flex Constellation. So the start-up of this charter is in Q1 or Q2 2026; given where the rates are today, it is more probable that the start-up will be Q1, as this is in our option. This 15-year charter takes the ship to 2041. So we're adding a lot of backlog through these recent new charters at a very good time I would say given how the market has experienced the last couple of months. We have also done some refinancing as we mentioned in our presentation in November, adding more attractive debt of $430 million, releasing $97 million in cash while extending our debt maturities and lowering the interest costs. We also provide guidance today for 2025. So despite the slump in freight rates, we are very well covered with our backlog. We expect that revenues will come in line with the numbers for 2024. The time charter equivalent earnings are expected to be somewhere in the mid-70s, giving revenues of $340 million to $360 million. You should note that we have four ships where we are planning to do the special five-year survey in 2025; however, we only took two ships out of operations last year. EBITDA is also expected to be fairly in line with last year, at $250 million to $270 million. So it's pretty good and steady sailing from Flex LNG. Once again, we are declaring our dividend of $0.75 per share, taking the dividend for 2024 to $3, implying a running yield of about 12%. And this we can do given the fact that we have a fortress balance sheet and backlog of $437 million in cash. I will touch upon a minimum of 62 years of backlog, which is about five years for each ship. Just a kind of summary of the 2024 results: TCE of $74.9 million, which is the time charter equivalent earnings, so it's like the average rate you have obtained on your ships, $74.9 million, with we were guiding about $75,000 in revenue; $355 million, we were guiding $353 million to $355 million; our very narrow range adjusted EBITDA smack in the middle of the range, $271 million to $274 million, we're delivering $273 million. For the first time here, we do see Q4 numbers below Q3 given the slump in rates from the end of September into Q4 and into 2025 for that matter. Just to touch upon our contract coverage, we have Flex Constellation, which was pictured on the front slide. She's on a 312-day time charter. We expect to get her redelivered by end of February, early March. She will then have a 12-month gap, where we will have to trade her in the spot market, which will be a bit challenging and reflected in the guidance. But once she comes into Q1 2026, she will commence a 15-year charter to 2041, where the charter also has the option to extend that ship to 2043. We have some ships with other ships with long-duration charters, Flex Rainbow all the way to 2033. As I mentioned, Resolute and Courageous, we extended in November all the way to 2032 where the charter can extend those ships to 2039. We have two ships with Cheniere, which we extended back in November 2022, where those ships have been extended to 2032 and 2031. We have two ships coming open in 2029, leaving us with Flex Freedom fixed until Q1 2027, which we think is a good window where the market will be much tighter than it is today. Flex Volunteer and Aurora are also with Cheniere fixed until Q1 2026, where they have the option to take those ships to 2028. Flex Ranger, again, I think it's a good window of redelivery. This ship is switching to 2027. We have one ship on index, getting close to her firm period. She was fixed from delivery of yard on a variable time charter for five years with Gunvor. That is maturing in Q3 when we are planning to do the five-year special survey for this ship. We will see whether the charter utilizes their options. They can extend the ship by five single one years. Those options are also on index, which makes it probably a bit more possible that they utilize their extension options since they are not fixed-rate higher. So altogether, 62 years of minimum firm backlog, which then might go to 96 years if the charters utilize all the extension options. Guiding for 2025, I already touched upon it. It's going to be deja vu all over again. We expect numbers to be very much in line with the numbers we delivered in 2024. With a stable business, stable outlook, we have also stable dividends, paying now $0.75 again, a total of $41 million in dividends. Over the last 14 quarters, we have paid this ordinary dividend of $0.75 per share. We also topped up from time to time with some special dividends. Altogether this number is now $610 million of dividends over the last 3.5 years, which gives our investors a stable and good income being invested in Flex. Before giving over to Knut, just a reminder of our decision factors for putting the appropriate dividend level. We had $0.57 of adjusted earnings per share. We are paying a slightly higher dividend given the fact we have, as Knut will tell you more about, we are flushed with cash. We think that we can pay out slightly higher than the earnings per share. The decision factors mostly are green lights except for the market outlook where the short-term outlook is poor. The medium-term is slightly below average, I would say. When we are looking at the market from 2027 onwards where we get most of our ships open, it's still compelling with long-term charter rates in the mid-80s which is above the level we are delivering today. It means we should be able to reach out to those ships at better rates in the future. I will remind you about a number you will not find in this report, and it's actually the most impressive number. It's our lost time injury frequency. This is our main safety KPI where zero is the theoretical minimum given the fact you have had no incidents. The number we delivered in 2024 was zero; no lost time injuries were reported, which I think is impressive and shows that we are delivering superb service to our customers. With that, I will hand it over to Knut before just to remind you.

Thank you. Let's start off since it's Q4 with a bit of a review of the full year, and in particular here, the operational days. As you may recall, in 2023, we had four dry dockings and this year we have had two. We had 33 days of dry docking, which is actually seven days below our budget, and net of the off-hire days for dry docking, we're delivering 99.7% technical uptime, which is a very strong performance. On the TCE, you see here stable TC, at $75,300 for the fourth quarter and close to $75,000 for the full year. This shows also the stable revenue streams that we have. On OpEx, we are, for the year, and also for Q4, delivering slightly below our budgets and guiding, which is a strong testament to our cost discipline. For 2025, we are seeing that a number of our ships are coming close to their schedule and maintenance on running hours, particularly for the auxiliary engine and main engines. In combination with higher crew costs, particularly crew changes in Asia, we are now guiding an OpEx per day of $15,500 for the year. If we look at the revenues, we have revenues of $90.9 million, of which $1.4 million is related to the EU ETS. We are subject to the EU ETS when our ships are in Europe and are making port calls to Europe. This is a cost for the ship owner, but under our time charter agreements, we can reimburse that and get it reclaimed from our charters. Revenues received from the charters will be booked as operating revenues, while we correspondingly will book the same amount as voyage expenses. We are delivering smack on guidance with our EBITDA, and one of our important numbers is the adjusted net income, where we adjust for non-cash items. For the fourth quarter, we're adjusting $15 million for unrealized gains on the interest derivative portfolio and a $0.5 million loss on the FX portion we have. We presented also on the Q4 presentation, we concluded some refinancing in Q3; that refinanced three ships, leaving the Flex Endeavor unencumbered. You will also see a lower debt balance and also cash balance on the Q3 numbers. The long-term lease for Flex Endeavor was concluded on 3rd October, releasing the full amount of $160 million. During the quarter, we had $52 million on cash flow from operations, scheduled debt amortizations, and close to $41 million paid out in dividends. That leaves us with a very strong cash balance of $437 million. This is a reminder of how we keep our balance sheet fairly clean. It consists of ships and cash, and then we have debt on the other side and the book equity. As we show here, our book values are more or less reflecting all-time low values, but we still maintain a fairly decent book equity ratio of 30% given our backlog. Most importantly, our debt funding portfolio consists of a very attractive mix of both bank debt and leases, which also includes RCFs to manage our cash position. During the quarter, we converted a term loan, a bullet term loan, with one of our banks to an RCF, thereby increasing our RCF capacity to about $414 million. We use this in between quarters for cash management and to reduce interest rate costs. Net of the RCF, our net debt balance indicates our interest rate exposure; the $530 million in dark blue is basically our net debt exposed to the floating rate market. Remaining here is fixed-rate debt and hedge debt, which I’ll cover in the next slide. Also, on the debt maturity profile, our first debt maturity is in December 2028, related to Flex Resolute. Given that she was announced a contract extension for her in the Q3 presentation, that remains a very manageable residual to refinance. We see here a Gone Fishing sticker; you see three hooks. We announced three contracts for three ships in the last quarter; even though we have a very attractive debt funding portfolio, we will consider refinancing those three ships, particularly given the long duration of those contracts. We have been managing our interest rate risk very actively. Last quarter, we did some amendments and added more duration to secure coverage during this high interest rate environment. We extended the duration, which has yielded very well, as shown in the realized and unrealized gains during the fourth quarter. This is a mix of traditional interest rate swaps and also fixed-rate leases and fixed-rate portions of our leases, which is primarily in our Japanese operating leases. In conclusion, this can be read in conjunction with the decision factors for our dividend. We have stable cash flow. We have a very healthy balance sheet with $437 million in cash. We have barely non-CapEx liabilities and a first debt maturity in 2028. That is what is here to support both our commercial and financial flexibility and dividend story. With that, I hand it back to you, Oystein.

Okay. Thank you, Knut. Let's dig into the market a bit. Yes, 2024 was a year with record low growth in export volumes. We put in recent history; on our Kepler platform, we couldn't find any year with less growth than in 2024, but I can't rule out that this could have happened sometime in the '70s or '80s. So I just put in recent history. Actually, growth in the market was lower than in 2020, when you had this wave of U.S. cargo cancellations. In 2020 the export market actually grew 1%. It is only 0.2% this year. It's a combination of factors. There have been some delays on liquefaction plants, and of course, it has been the sanctions on the expansion of Russian capacity, particularly the Arctic LNG 2, which I will come back to later. Despite the sanctions on Russian LNG plants, Russia managed to grow their exports by 4% last year, with Europe being one of the significant takers of Russian LNG. The U.S. only grew by 1% in 2024. Nigeria resolved some of the issues with feed gas problems and managed to show healthy growth both in Q4 '24 and for the full year. On the import side, it's been a year where Europe has stepped back. Europe benefited from two very mild winters in a row prior to this winter season, resulting in Europe coming out of the winter season last year with very high inventory levels, and they stepped back from the market, giving more room for Asian countries, particularly China, which grew healthily last year, getting close to the record levels they had prior to the invasion of Ukraine. They ended up at 78.5 million tonnes or 79 million tonnes; the record high is 80 million tonnes. India is up actually 14%. This has changed a bit in the past with the cold winter and the big inventory draws in Europe. Europe has been making a comeback in the market as we've shown on this graph. Before the invasion of Ukraine by Russia, Europe imported around 80 million tonnes. During the energy crisis of 2022, they were the buyer of first and last resort, increasing their imports all the way to 127 million tonnes, sourcing a lot of spot U.S. LNG at that time. Imports stayed stable in 2023, but given the two mild winters, they came out of last winter season with high inventories, causing imports in 2024 to slump to 103 million tonnes. This is changing now with a colder winter, less renewable output, especially in Germany. We see that inventories in Europe are well below the last couple of years, and we expect Europe to come out of the winter with low inventories and a big need for restocking during the summer months; this is also reflected in the price of LNG. We have a graph here showing the three main indices for natural gas prices. It's the Henry Hub in the U.S., which is the main benchmark price for natural gas, hovering around $3 to $4, one of the cheapest gas sources you can have. Then JKM, meaning Japan-Korea market; this is more like the spot LNG price in Asia, although most of the Asian players, the big nations like Japan, China, Korea, buy the LNG based on long-term contracts linked to oil price hubs. The TTF is the more deregulated European market, being the main benchmark for Northwest Europe, which is our virtual higher pricing hub in the Netherlands. Generally, what we have seen now is that prices have been picking up to a level where LNG becomes expensive at $15 million per million Btu, meaning oil prices above $80, resulting in more of the Asian nations turning to more affordable energy like coal. We see here that the pull from Europe is pushing up prices such that it is more profitable to send the U.S. cargoes to Europe rather than Asia, despite shipping being virtually for free now. This change in trading pattern in the latter part of '24 and into '25 has resulted in a significant slump in the freight market, which I will cover later. Looking at Asia, they had a good start to the year, pulling a lot of cargoes up at record high levels. We see a bit lower growth from Asia at the end of the year as Europe came into the market. The market remains stable in the mature markets, like JKT, meaning Japan-Korea-Taiwan. Taiwan grew their imports quite a lot, but Japan and Korea are fairly stable. China, as mentioned, has been growing steadily, and the same goes for South Central Asia. Turning back to Russia and the sanctions; there are a couple of big LNG export plants in Russia; two of them are not sanctioned: this is Sakhalin, primarily exporting to Japan, Korea, and China, and then Yamal, which can export cargoes to Asia via the Northern Sea Route with specialized LNG tankers. When the ice is thick, they prefer to export those cargoes into Europe, and Europe has been a willing buyer. We see, on the left-hand side of the graph, Europe had a record high import of Russian LNG last year. Some of the newer projects have been sanctioned, particularly Arctic LNG 2, a big plant. The first train is up and running, but they have not been successful in placing those cargoes in the market, and the second train is also ready for commissioning. We will see how this develops. Whether there will be a grand bargain with the EU, Trump, Russia, Ukraine will determine if part of the deal might be a lifting of the sanctions on Russian gas and LNG; this might see some of these cargoes return to the market. Looking at the export market, there is a lot of volume coming to the market. These were already sanctioned or given the green light prior to Biden imposing the moratorium on new export licenses in January 2024. As we expected, we mentioned in our Q3 presentation in November that we did expect President Trump to remove these limitations very quickly, which he did. There are many new projects in the U.S. ready to be FID. On this lower right side, we have picked out some key contenders to get FID either this year or next, including Lake Charles, Delfin LNG, Sabine Pass Expansion, Woodside Louisiana, CP2, and possibly Alaska LNG. However, there are a lot of trade disputes going on. We saw China imposing a tariff on U.S. LNG, similar to what happened back in 2018-2019, during which we had a 13-month period without China importing any LNG from the U.S. The Chinese have made contracts with many U.S. expansion projects. If this tariff remains in place, we expect them to resell those cargoes possibly to European buyers and source more LNG from Qatar, Australia, Russia, and West Africa. This is still uncertain. The trade wars are volatile. Suddenly, there are tariffs, and then there is a 30-day grace period. So we just have to monitor the developments. Regardless, there are a lot of LNGs coming to the market. Unless there is a significant trade war here, we expect a lot of new U.S. projects to come online, also given that Europe is expected to have trade conflicts with the U.S., where President Trump is pushing Europe to be buying more LNG from the U.S. Regarding the freight market, which is the market in which we are active, it fared quite normally during 2024, actually a bit firmer during the summer months than we expected. However, as we entered the winter season, rather than the market or the freight rates shooting up, they slumped and have continued to decline throughout 2025. We are now at rock bottom levels at around $10,000 per day, which makes it very uneconomical, especially for the older tonnage. The drivers of this shift include the change in trading patterns, where most cargoes are directed to Europe, reducing sailing distance and freeing up many ships. As shown on the left-hand side of the graph, there are around 35 ships available in the market, which has softened freight rates. We also saw a significant increase in spot fixtures last year, as cargo prices decreased and the panic alleviated. More charters are tapping into the spot market given the vessel availability, fixing ships on spot voyages rather than longer-term contracts. In this regard, we have done well, utilizing the window during 2021, '22, '23, and also into '24, fixing many ships on longer-term contracts rather than just relying on the spot market. Looking at the least efficient ships, the steam tonnage, generally, there are three types of ships: the older steam ships, around 200 still in the market, high-fuel dual fuel diesel-electric ships, and modern ships, the two-stroke, which obviously have better economics as they are larger and have more efficient propulsion systems. Rates for steam tonnage, pegged here on Affinity and Clarkson numbers, are at $2,500 per day. As for further numbers today, the rate for steam tonnage is actually zero. We have been talking about this for a long time; an overdue scrapping cycle for steam tonnage is expected. These ships have been surviving due to generally favorable markets, especially in '22 and '23, and into at least the first quarter of '24. Given the market slump, we expect a significant uptick in scrapping over this year, next year, and beyond, driven not only by economics but also by environmental regulations, which disadvantage these ships. In terms of newbuilding prices, they have stabilized at around $255 million per ship. The delivery window is now generally being 2028. Elevated newbuilding prices and relatively high interest rates in recent history are driving up long-term charter rates. To invest in new ships, you need a rate at least in the mid-$80,000 range to achieve a reasonable return on such an investment. Thus, longer-term rates hold up for those oil contracting ships, set for delivery in 2028 and beyond. Looking at the order book, we have a substantial wall of newbuildings hitting the market, one of the reasons why we strive to fix our ships until '27 and '28, where we foresee a better-balanced market. For '24, we expect 68 ships for delivery, but there has been some slippage typically happening in a soft market. The actual delivery count is only 60 ships. This means there will be more ships for delivery in '25, with an expected count of 93, and then 83 expected for '26 and '27. Almost all ships are built for long-term charters, given elevated newbuilding prices and the size of the order book; there's hardly any speculative ordering left. There are a few ships uncommitted for delivery in '25, '26, and '27. From '28 onwards, all those ships are either planned for long-term projects, including Qatar, which has expanded their fleet by more than 120 ships in order to renew it and also satisfy demand due to a significant expansion in Qatar. Looking at the market, we have been in a phase of limited growth over the last two years, and we expect growth to pick up in '25 and continue into '26, '27 onwards, which will help rebalance the market alongside the scrapping of older ships. Regarding older ships, we categorized different types of vessels. Less efficient ships, including steam turbine ships. They face a significant penalty under the EU Emission Trading System, costing around EUR7,200 per day. This tax is paid in Euro, and with the Euro and Dollar being roughly equal today, there's no need for FX conversion to determine the dollar amount. For the dual-fuel diesel-electric generation, the cost is EUR5,600 a day, while modern ships, the MEGI and X-DF, which our fleet consists entirely of, with nine MEGI ships and four X-DF ships, have a smaller kind of EU ETS drag at EUR4,600 per day. However, the EU prefers not to simplify matters. Most shipowners support the system; we would generally like a predictable carbon tax that penalizes the less efficient ships. This year, the EU has also implemented what they call FuelEU Maritime, a system for decarbonizing maritime fuel. Since LNG is a cleaner-burning fuel, there is a notable advantage for burning LNG compared to very low sulfur oil or heavy fuel oil with a scrubber. There is a huge penalty if one does not comply with the FuelEU Maritime regulation, the penalty being EUR2,400 per metric ton of VLSFO equivalent. It’s a complex environment. We have taken numbers from the shipbroker Affinity and calculated the benefits. On our ships, we will see considerable advantages from the FuelEU Maritime, particularly with the MEGI fleet due to negligible methane slip. There’s slightly less benefit on the X-DF fleet because they have a higher methane slip compared to the MEGI ships, and further penalizing the dual-fuel diesel-electric or tri-fuel diesel-electric due to the high methane slip. The steam ships, without methane slip, do however have tremendous fuel consumption, benefiting from the EU ETS; still, they have a considerable edge from the FuelEU Maritime. It’s hard to conceive they will be able to sell these kinds of rewards to others, but they can enter into certain pooling arrangements to lessen penalties or swap costs across the fleet. Generally, we think this system is unnecessary; as currently structured, it actually favors steam ships due to their significant LNG consumption, which is a clean fuel. To provide a bit of humor, I’ve modified a well-known quote from Ronald Reagan: the nine most terrifying words in the English language in 2025 will not be the government but rather, “I’m from the EU, and I’m here to help.” The EU tends to create many rules, some of which drive business costs high. Most recently, we went through the Corporate Sustainability Reporting Directive. We are listed in two places, in Oslo and in New York, so we need to comply with both sets of rules—both U.S. and European. This drives up costs for us. It’s not like we want to avoid sustainability reporting; we have provided our ESG report every year since 2018, disclosing numerous figures per the Sustainability Accounting Standard Board. On top of that, we have added the Global Reporting Initiative. Based on investor feedback, we also added the Carbon Disclosure Project, and our ranking will be released Thursday. Last year, we achieved a B ranking on the Carbon Disclosure Project. Our ESG report for 2024 will likely be available around April. However, dealing with two conflicting regulations is quite costly in terms of consultants and auditors. Considering that 95% of our trading is presently on the New York Stock Exchange, and the NYSE is planning to widen their trading hours to 22 hours a day, we have prefaced to propose to the Board for approval at the Annual General Meeting in May to delist in Oslo to save that money to focus on one reporting requirement instead of two conflicting ones. With that, I'm going to run through the summary before we move to our Q&A session. As mentioned, revenues are in line with guidance; we are delivering very strong results, $45 million or $31 million, depending on whether it's net income or adjusted net income, yielding EPS of $0.84 or $0.57. We added a significant amount of new backlog during Q4, positioning us very well to cope with the slump in the freight market during 2025, as we are guiding very similar results for 2025 as we achieved in 2024. With a large backlog and cash position, we are again paying out $0.75, providing shareholders with $3 in dividends per share, which amounts to a yield of 12%. With that, I think we should head into the Q&A session. Knut, you might have some questions prepared.

All ready.

Okay.

Maybe we should start taking two steps back and looking at the natural gas market. We use abbreviations for certain pricing hubs, JKM, TTF, and also Henry Hub. There is a question here if we can explain more about what these hubs are and the interlinks between them.

Yes. I think I did it in the slide with the gas prices, with Henry Hub being the main index in the U.S., JKM being the spot price for LNG in Asia, meaning Japan and Korea markets, and then TTF being the virtual gas hub in the Netherlands, which is a big importer and a central hub in the pipeline network in Northwest Europe. Of course, there are many other gas hubs. Last year, in 2024, the average price at the Waha gas hub in the U.S., which is West Texas, was 0. They were producing more gas than they could export, so they had to give it away at a price of zero. In the U.K., for example, you have the National Balancing Point. These three indexes, Henry Hub, TTF, JKM, are the most relevant.

Do you see pricing on TTF and JKM? When do you see cargo moving the other way around?

Yes. We had a good question earlier today about that. Generally, if you are doing shipping, you would like to have sailing distances as long as possible because that drives up demand for shipping. So I think in a sweet spot scenario, we would have Henry Hub at around where it is today, at $3 or so. Generally, there is a liquefaction toll, so you need to have a certain margin to move that cargo to Europe. If Henry Hub is $3, we'd probably like to have $7 or $8 in Europe and then maybe $8 to $9 in Asia, because then you incentivize people to send the cargoes to Asia rather than sending them all to Europe. At the same time, you want gas pricing coming down; $15 is a level where people would rather burn coal. If we're going to replace coal with natural gas, we need to lower prices. If we have $10— a barrel of oil is 5.8 million Btu, meaning that $10 gas price means $58 per barrel of oil. Hence, it’s crucial to maintain a price level that stimulates demand and encourages a shift away from coal.

Yes. We touched upon in the presentations with the new President, Mr. Trump in office, day one scrapping the moratorium. Do you see any movement in new FIDs, or when do you expect to see these FIDs being taken so that new projects can progress?

There's lots of projects now. The people who have these projects have not been idling for 13 months since the Biden moratorium. So while this moratorium has been in place, I think everybody understood that it would be lifted whether or not Trump won. So even with Kamala Harris, we would expect the moratorium to be lifted, although it might take a bit more time. With Trump, it was removed immediately. While this process has been ongoing, those projects have been signing off new SPAs or Sale and Purchase Agreements for LNG, known as offtake agreements. Typically, for a big LNG export, which is quite capital intensive, you’d want to have contracts for 80% to 90% of that volume to justify investment. These projects now have a very high level of contracted LNG, meaning that many projects are ready to proceed this year once approved. Usually, it takes 3 to 4 years for the first cargo to be produced. Plaquemines, owned by Venture Global, managed to achieve the first cargo 30 months after the FID. On a previous project, Calcasieu Pass, it was similar at 28 months. While it’s not like 30 months and you get full production, you do need to ramp it up over a period of time. Generally, I think 3 years to 4 years is a reasonable target. If they secure FID this year, you could expect these volumes from '28 and '29, as shown in the graph where we expect growth from those projects. The first growth will come from the pipeline of projects already under construction, mainly in Qatar and the U.S., followed by a new wave of FIDs. However, it’s not constructive with the trade rhetoric from Trump, which tends to scare away buyers because if tariffs are suddenly imposed, that might make it uneconomically viable to deliver those LNG cargoes to the importing nations. We would like to see a de-escalation of trade rhetoric; that would certainly lead to a better LNG market.

Yes. That leads into the next question because they push forward one-week, and Trump introduces tariffs. There's a lot of questions on geopolitical risk, particularly regarding tariffs against China. How do you see that playing out?

Yes. This time, there’s no big surprise; the Chinese have been preparing for this. They had the playbook ready. So once he imposed that new tariff, they were quick to act. Unsurprisingly, similar to the previous situation, they are imposing a 15% tariff on LNG—last time this happened in '18 and '19, they began with a 10% tariff, increasing it to 25%, leading to a 13-month period without a single LNG import from the U.S. And they eventually made agreements to import a lot of LNG together with soybeans and oil from the U.S. I'm not surprised by this kind of retaliation. My understanding is that Trump will talk to Xi Jinping this week. However, I think it won’t be resolved quickly. China has a huge trade surplus. Donald Trump sees trade deficits with every country as unacceptable, which doesn't make much sense economically. So we would expect this situation to persist for a while, unless a grand bargain is struck. I believe that Trump’s leverage, reminiscent of Reagan’s agreements with the Japanese in the '80s, might feature into the negotiations. In any case, the cargoes will be produced, and the question remains where they will end up. If China imports less LNG from the U.S., Japan, South Korea, Thailand, and other countries will import more, as well as Europe. Then China will have to substitute U.S. LNG with other sources. Soon, they will also have the option of sourcing LNG from Canada, especially with the LNG Canada project coming online.

This shifts us to fleet balance. There are two questions here. Starting off with opportunities, there are uncommitted ships in the newbuilding fleet, and there are also existing modern ships in the fleet. Do you see that opening up some opportunities in this market for attractive acquisitions or M&A?

Yes. There are just a couple of uncommitted ships. There are very few, and we certainly know who the owners are of those ships. As I’ve been saying, we have a very good company. We have very happy customers who are returning customers, extending contracts with us for longer periods. We deliver excellent operations. You saw our technical off-hire at 99.7% uptime. As mentioned, our key health and safety measure had a lost time injury frequency of zero in 2024, which is the theoretical minimum. We have a solid operation and good access to financing in both equity and debt markets. We’re always open to consolidation if someone with modern ships wants to be part of a bigger company. We are open to grow our company and can easily do that without adding much cost, provided the right opportunity arises. We are open to consolidation. Acquiring ships is straightforward; you just pay the highest price, higher than anyone else, and you can grow your fleet. What we strive to do is remain disciplined, ensuring we pay the right price and one that makes sense for Flex LNG shareholders.

Then regarding fleet balancing, we have talked about the steam tankers and their potential scrapping. Do you see conversion projects to import terminals either for the steam tankers or the tri-fuels?

Yes. I think there’s not enough; it’s like 200 steamships, and you can’t feasibly convert all of them into 200 FSRUs. Many of these older ships were placed under 20 to 25-year charters at the time they were built. We’ve shown in past graphs the roll-off of steam tonnage on existing legacy contracts. Consequently, many steam ships will be coming open. They will find it challenging in the spot market; no one wants to fix these ships. As I mentioned, firms are quoting rates for steamships today at zero. Thus, we think scrapping will certainly pick up. Steel prices are still pretty favorable; you could get around $15 million for scrapping a ship that has no future. We foresee many of these older ships being scrapped, although some may be converted into FSRUs, power ships, or storage ships, which will increase demand for LNG since they need fuel. The tri-fuels are better candidates for FSRU conversions, but many of the first-generation dual-fuel diesel-electric ships will also find a difficult time in the market because they’re subscale. Environmental metrics, both EU ETS and Fuel Maritime, heavily penalize these models.

And on the steam tankers, we talked about scrapping due to high costs for 20, 25-year special surveys, and they are earning zero today. Clare Pennington asks about the cash burn levels for either cold storage or in operations. How long will they survive?

The OpEx is quite similar. Let’s call our steamship $15,000 a day in OpEx. You can put a ship in lay-up, either cold or warm lay-up; warm lay-up means you have a crew onboard. If you have a crew onboard, you will incur those running costs. Then there is the cost of lay-up, which depends on where you're laying the ship up. If you have certain port costs or not; this varies. You want colder weather, so you don’t get too many barnacles on the hull. These ships have lived out their economic life. You can put one in warm lay-up for a short time. However, with the influx of ships coming in '25, '26, '27, we don’t see the market turning around quickly. That’s why we built the backlog. It is probably better to retire those ships. The time value of money is significant today. Even after the Fed has cut rates, the rate is like 4.5%. If you delay scrapping a ship, you receive a $15 million payout. If you wait and incur costs, there will be additional implications. You will lose certificates, which create extra costs. Therefore, I think steam ships are better suited for scrapping rather than lay-up, which will ultimately help return balance to the market by 2027. In the last quarter, we had a graph showing how we and SSY believe the market balance will develop. We see that the market will return to a better balance in 2027, assuming around 53 steamships will be scrapped within that timeframe. Last year, the number was eight ships, and the market was okay. The current market isn’t acceptable. We think this number of 50 steamships to be scrapped now seems a bit low considering the long-term outlook.

Moving to our fleet, there are questions related to two of our ships: Flex Constellation and a 15-year contract. I think we covered this last quarter as well. The question is if this is related to a particular liquefaction project or an SPA.

No, it's really linked to our portfolio. We haven't disclosed the charter. I think two trade wins have done that for us. However, I can say it’s a huge Asian industrial LNG buyer or agglomerator. They buy a lot of LNG and are one of the largest LNG buyers globally; they source LNG from a variety of projects and need a reliable fleet of ships to deliver their LNG globally.

Following up on the 15-year contract in this period, do you see many other 10-year opportunities or similar tenders out there?

Right now, it is a pretty slow market. It's really the cargo owners or the charters who can pick and choose which ships they want, given the current rates. Most people are taking advantage of the spot market due to the high availability of ships today. People are typically waiting until the market tightens; then someone will jump on the opportunity to secure long-term charters before rates increase. I don’t expect that to happen this year, but probably be preparing for '26 and '27.

Another ship is Flex Artemis, which operates under a variable hire contract. The question serves as a reminder—how does this variable hire contract work?

Yes. We fixed that ship on a variable hire contract back at the end of 2019 and announced it was with Gunvor, a prominent LNG trader. The initial firm period lasted five years from its delivery in August 2017 from DSME, now known as Hanwha 2020. The ship is on a variable charter, with the rate set for each voyage within a certain range. The rate cannot fall below or exceed a specific floor and ceiling. This variable rate is pegged to observed spot rates for modern tonnage, as in MEGI/X-DF, MEGA, the two-stock ships. The initial firm period is coming to an end in August 2025, and the charters have five one-year extension options, also at a similar index, meaning that if they declare the options, they will also benefit from a rate linked to the spot market. Currently, of course, they are paying a rate that is at the floor, but as we approach August, we will know whether they will extend the charter or not. If not, we will undertake the five-year special survey of the ship and prepare it for the winter market. This ship is very attractive—along with Resolute and Freedom, it is one of our most efficient ships featuring a full re-liquefaction plant. These three ships have a two-compressor setup that can bring the boil-off gas down to 0.035%, effectively allowing the combustion of gas vapor as fuel onboard the ship. We hope the charter continues with the ship as a happy customer; we will have clarity once we get closer to the end of the contract.

I think that concludes the Q&A session. It's time to announce the winner.

Yes. Okay. Do you have an idea?

We have received many good questions from Clare Pennington of Independent Commodity Intelligence Services.

Also known as ICIS, but it's not the ISIS.

The friendly one.

Yes, it's the friendly ICIS. Thank you, Clare, for asking many questions during the year. You will receive these swanky socks as I mentioned: cold cargo means you can keep your feet warm. I will send you two pairs. This concludes today's presentation. It’s my 30th quarterly presentation, so I'm looking forward to Presentation 31 in May. Thank you, everybody, for listening in, and I hope to see you soon.