FLEX LNG Ltd. (FLNG) Q3 2022 Earnings Report, Transcript and Summary

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 a email to ir@flexlng.com. If you have any questions then we will answer some of the question in the Q&A session following the presentation. Before we begin, we just want to highlight our disclaimer regarding forward-looking statements and use of non-GAAP measure, and there are limits to the completeness of detail we can give in this presentation. So please, review also 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 was $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 the new seven year Time Charters, which we announced in June and this replaced 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 ships to Cheniere at the end of the quarter. Our CFO, Knut’s been busy refinancing ships and we have recently secured $630 million of refinancing for four of the seven ships we intend to refinance, and with these refinancings, for only these four ships, we are already surpassing the $100 million target we put in terms of cash release. These four ships altogether will release around $110 million. So for phase one and phase 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 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 fourth quarter is expected to be somewhere around $95 million to $98 million, also inline with 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 is, however, options by the charter to extend these ships, so the first fully open ship we have available today is actually middle of 2026. So 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 inline with our earnings per share of $2.76. If we add Q4, we have paid $3.5 of dividends for the last 12 months, which implies a yield of around 10% with today's stock price. So as I mentioned, we have a very good coverage. As you can see from our fleet overview, we have two ships, which could possibly come open in 2024. But as I mentioned, there are options by the charters to extend them, these ships. So the first fully open ship is Flex Vigilant 2026 and then we also have three ships coming open or fully open 2027. We do think this is very good timing. There is a lot of LNG coming to the market in this window. And 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, which is just lagging of our revenues for Q4 this year. Dividend, as I mentioned, no big surprises there. A consensus to estimate for our dividend this quarter is also $0.75, bringing the last 12 months dividend to $3.5 in total. We have gone through our decision factors for how we are planning our dividend in details during the last couple of quarters. As you can see here, it's a lot of green lights, our earnings are strong, market outlook is good. We have as I mentioned, a very strong backlog. Our cash position today is $271 million. And with the balance sheet optimization program, we expect this cash pile to go even further. Covenant compliance, we are flying with green flag. We don't have any upcoming debt maturities. We don't have any CapEx liabilities except of 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 dividend in new FLEX LNG shares, will now have the opportunity to do so. So if you look 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. So in total, we have actually made $93 million on interest rate swaps since 2021. So why is that? During our Q4 presentation, in February 2021, we focused on a couple of factors impacting our business. One, of course, trade war. There was a big trade war with US and China. This is really resulted in cargo flows from US to China drying up during 2019 and flow of cargos from US to China didn't really resume after the phase one trade agreement was agreed between China and US in January 2020. We also have deglobalization, which has been the factor for a lot of different industries. This has not really been the case for LNG as we see more and more countries is entering this industry, both on the import and export side. COVID 19, of course, was very much in focus early 2021 in western countries. We have mostly put this behind us but this impacting China's LNG demand quite a lot with their imports this year being down 22%, so which has been fortunate for Europe facing gas shortage. Energy transition is still a very relevant question. Making coal history, which economies put up has not really been the case as coal consumption has gone incredibly much due to the 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. And 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. And then the last thing, which has been driving our interest rate swap is the free money. Back in February 2021, we said one of the big drivers here is the [free money] and the [money printing]. So the remedy, as we said for COVID-19 was all tension fiscal and monetary stimulus on unprecedented scale, and we are now seeing the effect of this free and easy money. This -- we asked if this would result in higher inflation and whether the debt super cycle would be replaced by a commodity super cycle. And we said that we weren’t that really that worried, because usually in a commodity super cycle energy and commodities are doing well and shipping is part of that value change. Regardless with interest rate at rock bottom level, 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 rate and that has resulted in huge gains for us in terms of these interest rate swaps. So if we look at what has been happening then since we put up this slide back in February 2021, it really gone very much according to what we were thinking could happen. It actually started already in March 2021 with the big fiscal stimuli by the new President Biden with the COVID relief package, the Build Back Better plan was however [reduced] by congress. We also saw the energy shock starting way ahead of the Russian invasion of Ukraine. Already October 2021, economist ran this cover with the energy shock, because Europe was entering a winter with very low gas inventories, driven also by the fact that Russian were holding back flows. And this resulted in the gas price in Europe doubling the [fee] first weeks of December 2021 from $30 to $60 per MMBtu, which was really our unprecedented level at that time. In February 2022, the markets also became anxious that this inflation would not be transitory. However, on February 24, 2022, Russia invaded the Ukraine and we had a market route and a flight to quality and long term interest really fell a lot. So in fact, we actually double down on our bets and we entered $200 million more of interest rate swaps for 10 years at a low rate of only 1.7%. With the war in Ukraine, we also saw a lot of supply shocks affecting a lot of shipping segments and energy sectors and certainly energy security, which has been dormant policy for a long time came back in vogue, because of the vulnerabilities we saw after this war in Ukraine started. We also saw that the market started to realize that the federal reserve was behind the curve. And finally in March this year, the federal reserve also started to hike its interest rate first by 25 basis points, then 50 and then we have had this jumper hikes of 75 basis points, driving the federal reserve policy rate from 0% to 0.25% to now 3.75% to 4%, and the market expecting these rates to peak out somewhere around maybe 5%. So of course that is also one of the drivers that we made so much mark-to-market gains on our swaps. We are also seeing politicians realizing that energy is complex. It's not really a one solution, it's a dilemma, it's about emissions, it's about affordability and it's about security. So we do see some more realism by policymakers makers in how to make the energy markets work. And then lastly here, the last cover we are presenting is the Europe at winter [indiscernible]. There has been our anxious market that Europe would end up with a lot of gas shortage this winter. I will come back to this in the market presentation. This hasn't materialized because of luck, because Europe has been able to source a lot of LNG because of the COVID lockdown in China, and it's also driven by demand destruction and very favorable with the weather in Europe so far. So also I would also highlight that if you want to have more insight on the energy markets and the winter, I would also recommend this mark to market podcast where our new board member Susan and myself have recently joined to discuss the LNG markets more in detail. So with that, I think I give 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 the 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 this quarter by still higher COVID related expenses, crew changes and extended handovers. Going forward, as restrictions are lifted, we expect the COVID related costs to slowly go away. And with the extended handovers we have already performed, this cost should taper off and we should return to normalized levels. Interest expenses this quarter is 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 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 reconsidered the total refinancing of these two vessels, these costs will be paid back in approximately two years as the new terms are more attractive. This gives us net income of $47 million or an 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. And as a reminder, these vessels and the book values reflected these vessels 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, 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 then we have our dividend for last quarter of payment of $66 million, which included $26 million in the 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. So the notional value of our spot portfolio today is $641 million. And in combination with the fixed interest rate lease, we have a hedge ratio of about 47%, excluding any utilization of the RCF. The amendments we have done, we have terminated a number of swaps as we see here in Q3, which released $9.3 million and then continued into Q4 when the interest rate levels were high, we terminated swaps and realized $14.4 million. The plan for the use of this cash is to maintain that on account to continue servicing that interest going forward. We have also amended longer duration swaps and made them shorter. And therefore, we now have a total balance of both cash lease and swaps, which will protect us going forward for higher interest. If we look at our optimization program and the phase two today, we are pleased to announce that we have met our $100 million target. We have commitments for financing, which will release $110 million. This include leases and bank facilities and we also invite new banks to our banking group, where we also then expand our geographical diversity of where we can raise financing. This financing meets all of our priorities. And then we have about four vessels remaining for refinancing where we see the potential to further release about up to $100 million. If we look at the financings that we today announced, on the Q2 presentation, we indicated a financing for the Enterprise. Today, we can announce that that 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 then also announced a new bank financing for the Flex Resolute, also $150 million with margin of 175 basis points, also a tenure, which is 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 the Flex Amber with the combined margin of 215 basis points. It's all in all 12 year tenure for this and an average repayment profile of about 22 years. We're very pleased with this financing and we are now considering financing of the Flex Rainbow on the back of the 10 year contract, which then can include Flex Aurora as a replacement vessel for the financing concluded in earlier this year for the Flex Rainbow. We are done also evaluating the options for the Flex Freedom and the Flex Vigilant, and we'll come back with that as soon as we have more news to announce. So with that, I think this is a concluding page 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 the phase one and two, we free up capital but we have Rcf capacity, so the carry cost of the cash we release is low. With the new financings, we have an ambition to further increase our Rcf capacity, and that will support the journey of FLEX LNG going forward and safeguard us through the cycles. And with that I hand it back to Oystein.

Okay. Thank you, Kunt. So let's go back to the market. LNG exports the first 10 months of the year is about 5% is driven by US despite the shutdown of Freeport, which is now expected to resume exports early next year. US is still growing 11% while 6 million ton in total. Russia despite all the sanctions and the curtailment of pipeline gas, LNG export growth out of Russia is continuing to grow and is growing 12% in the first 12 months adding 3 million tons. We also have 3 million tons from Malaysia growing 13% and then 4 million tons from the various of the markets. If you look at the import side, not surprisingly maybe, it's Europe who is absorbing and soaking up a lot of the LNG. They are basically importing all the growth in the market and then also the shortfall in demand from other countries. The most notable being China, as I mentioned, with the COVID restriction and lockdown still in China, LNG import is down 22% this year. The high price of LNG is also forcing out other the countries like Bangladesh, Pakistan, India where the price of LNGs become so expensive that they are turning rather to coal and other feedstocks for their energy demand. So this demand destruction in other countries and the growth of LNG market has really saved Europe up this year, which is able to go with LNG imports by 37 million tons or 57% the first 10 months of year. So if we look at the gas current share in Europe hope, it's been solved by a couple of factors. It's one, the high prices is stimulating energy savings and we have seen especially demand -- destruction of demand subversion on the industrial side, a lot of the households are still being subsidized, which disincentivized energy savings. So altogether gas consumption in Europe this year is down 12%, also driven by a very mild beginning of the winter in October. You saw basically all the big countries in Europe had a very mild start to October and this has continued so far also into November. So with demand for gas in Europe going down and a glut of LNG hitting European import terminals, to everybody's surprise, I would say, we are actually now in the middle of November with basically full gas storage levels in Europe, which is also creating further bottlenecks, and this despite Russian pipeline gas being reduced significantly. We have seen this being tapering down and now with the explosion of the Nord Stream pipelines, it's basically only small quantities of gas being exported to Europe, ironically enough through Ukraine. And then, we have had all these worries about energy or gas situation in Europe for this winter. It seems like it will be solved with full gas levels in Europe. The gas levels in Europe is sufficient to cover about seven weeks of winter demand. So this gas inventory isn't really that big. But next year, I think Europe will face a bit more challenging task. This year, as I mentioned, it's the LNG -- [glut] of LNG going into to Europe that have solved the solution together with demand destruction. And then of course Europe has been lucky that China has been shutting down and not competing head on head with China for the spot LNG cargos. But still as, I mean, we saw on the last half, there are still Russian pipeline flows to Europe. How much of Russian pipeline flows will go to Europe from Russia next year? That's a big question mark. If you look at the right hand side graph here, we are looking at the change in Europe's gas balance next year, and you can still see this 35 million tons of LNG equivalent gas going from Russia to Europe, there's a big uncertainty in market about whether these volumes will be coming to Europe next year. And that means Europe will either have to import even more LNG, but really not 35 million tons in the market, there need to be more demand destruction and basically there is a gap for next winter, which will make also the winter ‘23, ‘24 challenging for European consumers. So with that backdrop, it's maybe not surprising that the gas prices are staying high at elevated levels, not in US where shale resources are bountiful, prices calmed down at very low levels compared to import nations in Europe. And we see how the TTF for the Dutch gas hub prices and then the dotted line here being the Northwest Europe delivered ex-ship LNG price. So with all this glut of LNG coming into Europe, the import terminals are bottled up and the LNG actually has to be sold at the big discount to pipeline gas prices in Europe in order to divest it. So right now we actually also do see a contango in the gas prices because of the full tank inventories and the fact the winter's been so mild. Of course, the winter is not going to stay this mild for the whole season. So once temperatures are getting closer to zero, gas consumption will go up. And this is meaning that gas for delivery in future is at a higher price than today. And this is also incentivizing floating storage of LNG, which I will also come back to shortly. As we can see, the Asian spot market, the [JKN] market is also at similar levels to Europe, meaning that we expect prices here also to stay at elevate levels. And with China possibly coming back to the market, there will be more competition for Europeans sourcing spot cargos. So as I mentioned, the bottlenecks are everywhere in Europe these days. It's on the import terminals and it's also actually these days on the storage tanks, and this has resulted in a huge build up in ships tied up in floating storage, especially in Europe, but also other countries these days, because of the contango structure in the price curve where you can sell your cargos at a later date at a higher price than today. And today, we are at the all time high level of around 40 ships being tied up in such floating storage, which is of course taking out a lot of ships from the spot market or the general freight market, which is also then making the freight market very tight. So looking at the spot freight market, it's been on such a bull run now that we actually have to change the access to logarithmic scale. We've gone from a slump during the summer. We had a very good spring rally in the spot freight market, then the Freeport shutdown happened, really since spot market down again. But then with the build up of ships in floating storage, there's been scarce ships available in the market. And this has sent spot freight rates up to around $0.05 million per day and above all seasonal records in the past. However, with such strong rates it's a reflection of the fact that there's not really many ships available in the market. So the numbers of spot fixtures has gone down a lot. And of course a lot of the fixtures, which is being done or concluded today are relets, where basically charters through our long shipping can optimize the program, release a ship for a short period of time and relet that in the spot market for shorter term voyages, where they can make a lot of money as evident from these graphs. So also the long term markets been recovering. It's been recovering also because of the fact that newbuilding prices has gone up, and I've talked about it already. The inflation, the yards, has a very big order book, packed with LNG ships, packed with container ships. So the newbuilding price has gone from $180 million to $250 million. So this translates to $70 million per ship increase. If you have all 13 ships, it's $900 million increase in the value of LNG carrier in a rather short period of time. And of course, with higher interest rates and higher newbuilding prices, you have to have a higher charter rate. So if you look at five year time shot of it for a pump delivery, we are now above $130,000 per day. But that said, there's not really that many ships available on a pump basis, as I shown on the previous graph with the liquidity in the freight market. Looking at LNG flows, these are on the left hand side, the FIDs. So project being sanctioned for green light of new capacity. And these are also, we are including what we think is the possible of new. There's really now a fight with -- between all the export projects to get a green light for the projects, to add more LNG to the market, because the main problem today is a lack of LNG with all the Russian gas, pipeline gas to Europe suddenly gone, this need to be replaced by a lot of new LNG. And so far Europe’s been lucky in order to be able to buy this spot cargo since China's been away. But with China coming back, we do expect them to start increasing the imports and then there'll need to be more LNG in the market. And actually, what we are seeing is that the Chinese are the ones signing up for the most new LNG. So we do expect a bit muted volume growth. This year, it's a rather low. Next year, again, a bit muted on the volume side, the same for '24. But then there is really a big ramp up of new LNG coming to the market '25, '26 and then we also do expect quite a lot for '27 once some of these new projects are being sanctioned. And so this gives us a good timing in the sense that we have ships coming open in '26, '27. So we don't have that much market exposure in '23, '24 when volume growth is muted and where you could have a risk of not that on time mitigating the low ton mileage growth we have seen this year. Because this year, ton mileage is down but the freight market has been good because times gone up, because of congestion and ships being in floating storage. So that's the highlights. I'm going to just run to them quickly again. Revenues $91 million inline with guidance. We expect earnings to improve in Q4, driven by a better spot market. So revenues next quarter somewhere around $95 million to $98 million, also inline with previous guidance. This quarter we delivered earnings of $47 million or $42 million on adjusted basis, which gives our earnings per share of $0.88 and $0.79. We are busy on the financing side. As Knut presented today, we just secured refinancing of four LNGs and we already ahead of the $100 million target for balance sheet optimization phase two. We do expect that together for phase one and phase two, we will be able to release more than $300 million of free cash for this refinancing of the fleet, while also improving our financial terms or tenures and other financing terms. We are fully covered for next year. We have very strong coverage. As I mentioned, two ships possibly open 2024. But the first fully open ships is '26 and '27 when we see a lot of new LNG coming to the market and where we will be competing with ships with a much higher price tag than us. So we are very confident we will be able to secure new long term employment at hopefully even better the rates than we are having today. So not surprisingly then maybe we are declaring again $0.75 of ordinary quarterly dividend. This gets our dividend so far this year of $2.75 per share or the last 12 months of $3.5 and given our stock price of around $34, this should give you high yield of around 10%. So thank you, and that's it for us today. We will now do our Q&A session and we will both, me and Knut will participate. So I hope you have all sent in some good questions. Thank you.

Okay then we are ready from some questions, sir. I think we have about 20 for questions before we are heading for airport going to New York for investor meetings. So if you are in New York, we will be on the Marine Money Conference in on Thursday talking about LNG and shipping strategy in general. So hope you will be there, if feasible. This time, we have had a lot of questions. We have had a competition here with some giveaways for the best questions, and that has resulted in a wave of questions, which we are happy with. And we have also given some gifts for those people giving the best question. Number one, future look like, you have to wear shades, FLEX LNG shades, and if that shading is not enough, we also have a cap maybe you, Knut [Multiple Speakers] my head. You want to try this on? And safety always come number one. So we also have the Flex reflexive bands. So let's see who is winning our giveaways this time.

Yes, a lot of questions as you mentioned, and I think we kick off like last quarter with the questions from Omar Nokta from Jefferies. He starts off with the index link, the vessel, the Flex Artemis. Can you remind us of how the earnings are calculated? I'm guessing there is a ceiling of around 100,000 on a floor of about 50,000 per day.

It's much easier. Before we had more ships on 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 it's a floor, and we have communicated the floors around our cash breakeven level. When it comes to the ceiling, it's much higher than 100,000. Keep in mind we are generating $91 million of revenues in Q3, we are saying that this will go to $95 million to $98 million for Q4 earnings and Q3 for the spot ship, for the Artemis ship was pretty good already. So when we are saying that earnings are increasing $5 million to $7 million, if that’s 92 days in Q4, so basically we should be growing the revenues for that ship somewhere around $50,000, $60,000 per day. So that means that the ceiling is a lot higher than 100,000. I won't comment specifically on it for competitive reasons.

And he follows up with the question regarding the vessels coming open in 2026 and 2027. How does the charters interest for those vessels, and any indications on the rates and duration?

There's a lot of interest. Keep in mind, the first available ships you can get is ‘27 and ‘27 all the book at the yards are getting pretty packed. So soon, we are talking 2028 prices out through 50, interest rates are up, we have hedged a lot of that risk. So that means in order for people to calculate a good return, they basically need maybe 10, 12 years time charters and probably a rate starting at 9. So that means that as we shown on the graph, long term rates are picking up a lot and we think we can benefit from that. We are having the same ships as MEGI X-DF, the two stocked efficient ships. So what we can offer is maybe some more flexibility in terms of the duration of the time charter, because we have ships coming open in that window. But I think we can get better rates than we have on average today. And I would say interest is high given the fact that yes, the order book is big, but there are very, very few and committed ships in the order book. So we are working on that. We are meeting people, we get -- there are tenders in the market for these kind of deliveries slots, that's why we’re also upbeat about the prospects for recontracting ships for longer durations at [charter] rates.

And then a question from Anders Karlsen, for the vessels where the firm period is ending in 2024. So it's a question on the option periods. How are the -- is the rates the same or is there any adjustment through the rate?

Yes, I think if you look at in our presentation, there's two ships coming open possibly in 2024. It's the Vigilant, there are extension option for two years for that ship. So that's the first fully open ship we have in the middle of 2026. And then it's the Constellation, also similar period middle of 2024, the charter that can extend the ship for three more years. In general, I would say, option rates tend to be higher than the firm rate. It's a option. We are not there to give away options for free. Usually if you give a option, you want to get paid and that's usually either through a higher rate on the firm period or a higher option rate.

And then we have a number question about fleet development. How to grow the fleet, do you have any newbuilding plans, plans to expand into FSRUs or consolidation?

Yes, I think we get this question every quarter. What we have said, we want to be disciplined. We have ships coming open this ‘26, ‘27 delivery, slightly ahead of some of the newbuildings for delivery now. And also when LNG export volumes is kind of going tremendously after a bit muted period now from ‘22 to ‘24. So our focus then is not running through yard buying out ships at 250, everybody can do that if they have the money. What we want to do is secure employment for the existing ships we have, and that is our main focus. And then of course having a good return on our equities so we can pay this dividend. We are open to growing but we just feel newbuilding prices are stiff. If we now investing $250 million in that ship, it would be more difficult for us to pay that dividend, and also that capital will be idle to maybe end of 2027, it wouldn't generate any return. So yes, the yard’s ticket price is 250 but also the opportunity cost of tying up that capital for such a long period we also have to take into account. So if you're calculating, you're losing that dividend for those couple of years, you're tying up that capital. We also take that into consideration when making investment decisions. As we said in the past, we’re open for consolidation. If we find suitable ships, we have a scalable platform, we can easily grow the fleet by twice as many ships without recruiting many people. And we have a in-house management, which has delivered fantastic results for us. So we are open to do it. But you know, our number one priority is to deliver good returns for our shareholders and efficient transport and good service level for our customers. And if we do that, I think we will do it well. FSRUs, no, you know, I think that market was dead. It's been resurrected because of the problems in Europe where you had to add a lot of import capacity very quickly. So it's been good for those people who have FSRUs. And then I think there will be a conversion market for existing ships. You can convert them into FSRUs use. All modern ships are basically too modern to convert them into FSRU. I think there are 160 [high fuel] out there are better candidates for being converted to FSRUs, because they are diesel electric, they have four diesel electric motors, and you need a lot of electricity as well to generate kind of the regas kit. But you know that would be good for us. The more ships that are leaving the existing fleet, the less ships that are in the fleet and every shape you're converting to FSRU or employing as FSRU that need more cargos, and those will be transported by the existing LNG carriers, including ourselves.

Moving over to the market, we have a question from Michael [Otton]. How do you see Asia ton mile demand for this winter given the high probability of La Niña?

Yes, it seems like we will have a triple dip La Niña this year. I think it's the third time in recorded history we have a triple dip. Usually that means a cold snap in Asia, sometimes also theoretically should be in Europe, even though the winter has started mild, but it's too early to sell your skis. The winter could be coming any day soon. So in general, it should be colder whether. Whether this has an effect on ton mileage, it really depends on whether Asia suddenly they get a cold snap and start importing desperately cargos, because one thing in Asia is the fact that they have rarely limited storage space. So it's more like LNG in Asia is just in time, because they don't have the same underground gas storage levels we have in Europe. So we saw this happening January 2021 with the cold snap in Asia. And certainly we had a wave of cargos going to Asia and that really resulted in a very strong spot market for freight also in January-February 2021. That could drive up tone mileage. But so far this year, ton mileage has been very muted, because the cargos are flowing predominantly to -- or the US cargos are flowing predominantly to Europe, if that's switched to Asia, ton mileage will go up and we will probably have less problem when all the ships in floating storage is liquidating their cargos, then those cargos -- then the ton mileage will mitigate the lower point time.

And we have a question on the OpEx and the increased OpEx level in Q3. And an explanation for that is that's the new level. I'd say that, Q3, we still had some COVID related costs. It's related to quarantine and COVID testing that is facing-off and we are no longer subject to strict current timing and testing as the easing of the restrictions in particular in Asia. We have also had a large number of crew changes and new [on signers], which we think results in extended and handovers, which is higher cost that should also taper off. And we have also had some supplies which were expensed in the Q3, but is for the remaining part of the year. We do believe that we should come back to the guided level around 13,000 per day and this is something we are monitoring continuously.

Yes. But also as we said in the presentation, inflation has been higher than a lot of people expected. Not us -- we had 13 months before it started to increase the race from zero, and actually we are benefiting from a strong dollar in the sense that we have a lot of cost for the seafarers in local currency. And a strong dollar means that they will have the same purchasing power even if you have some inflation.

And then moving up to a popular theme, it's our cash balance and our refinancing phase one and two, where we release a lot of cash. What's you plan to use all this cash for?

I think you explained well. We have the best financing market I've seen in a long time. Last time I've seen something similar to this was 2014. But I think the market for financing today for Blue Chip clients as ourselves are even better today than 2014. For those who are second tired, financing market today is very challenging. So I think for the Blue Chip guys like us, we have to go back to prior to the financial crisis in 2007 when the Germans were throwing money around everywhere, we find taking the money when it's available and it's attractively priced and where we can look in that financing for many, many years to come, makes sense. And also we are coupling that with the revolver as Knut mentioned. So the carrying cost for also having that cash is not very high. So it gives us optionality value and also gives our investor comfort that our dividend can be sustainable for a very long time, given our contract backlog, our market outlook and then our very sound cash position.

And that brings over to the dividends, couple of practical questions, when the dividends is being paid, then I refer to the information that was distributed this morning on the key information related to the dividends. For the US investors on New York Stock Exchange, the dividend will be paid on or about 6th of December and in US dollars and for the investors on Oslo Stock Exchange, they were paid in -- on or about 9th of December. But please see the press release.

Well, ahead of Christmas. So just wait and you will get it so you can spend it on your family or friends.

But that gives also questions regarding guiding for dividend going forward…

Yes, I got some emails today, wondering why we don't have a special dividend. We can't really pay a special dividend every quarter. Then it becomes ordinary dividend. What we have said fairly $0.75 is a comfortable level over time, which is sustainable over longer time. When we completed the balance sheet optimization phase one, we raised $137 million of cash, our target was $100 million. We paid out special dividend of around $26 million. We are now working, progressing well on the phase two. Let's see next year what we are doing. We can't really guarantee special dividend, really depends on the market and the opportunities we have. But what I can say is we like dividends. We like to pay out dividends. We are shareholders, we have a big shareholder also in the Fredriksen Group who appreciate the dividends. So we are paying out basically hundred percent of earnings, but where we can have optionality of topping that up with special dividends. But we're not going too guaranteeing, what we are saying is we like the ordinary dividend and from time to time we will evaluate whether it makes sense to [juice] it.

And you mentioned the main shareholder, there’s a question here. How involved is the main shareholder and the decision making in the company?

Of course, our main shareholder, John Fredriksen, is the most successful shipping investor of all time probably. He's been doing this for six years. He's seen cycle common goal. So of course, he owns 44% give or take of the company. So of course he has a vested interest in the company and the performance of the company. So sure, he's heavily involved. And he's a fantastic guy to tap for advice as he has seen everything in the past, he has seen boom, busts and so for sure he's involved and like the business.

And I think we'll wrap up with a winner question on Twitter from [Johannes Schuler]. Why are the LNG and LPG markets completely detached, but still FLEX and Avance Gas management are the same and so great?

Thanks [Johannes Schuler]. I will seeing you in neighborhood with some FLEX kit soon. Avance Gas, which I'm running as Executive Chairman and our Chief Commercial Officer, Marius Foss is also Chief Commercial Officer of that company. Yes, it's detached but there are some similar drivers. Shale gas. number one, shale gas has been made US the biggest LNG exporter in the world. On the LPG side, it's by far the biggest. So 50% of the very large gas carrier cargos comes out of US. In LNG, it's less. So you know, there are some similar drivers. Although, the VLGC market is more a commodity shipping, LNG is more a liner business where it's more about logistics, having long term relationships and making sure that the cargo is always on time. On the VLGC, it's a bit different. As mentioned, commodity shipping, Avance Gas is mostly there for a spot oriented company and I will be presenting Avance Gas results next Thursday. So if you think FLEX is a bit boring and you like to have a bit more excitement into your life, you can also invest in Avance Gas listed in Oslo Stock Exchange, which has a lot more spot exposure, which goes up and down. Right now, it's very nice being in the VLGC market with rates at around 120,000 for these ships that is costing a lot less than LNG carrier. So thank you for your question, [Johannes]. And I we adjourn it for the day and hope to see you back for quarterly presentation in February. So that's it for us. Thank you very much for joining. Thank you.