FLEX LNG Ltd. (FLNG) Q1 2023 Earnings Report, Transcript and Summary

Hi, welcome everybody to Flex LNG's First Quarter Results Presentation. I'm Oystein Kalleklev, CEO of Flex LNG Management and will be joined by our CFO, Knut Traaholt, who will walk you through the numbers a bit later in this webcast. As usual, we will conclude with our Q&A session where the best question can win our Flex on the Beach Summer kits which I will be presenting a bit later in the presentation. Please use the chat function to pose a question or you can also send a email to ir@flexlng.com So, before we start, just a friendly reminder about our disclaimer in the presentation. We will be giving some forward-looking statements and there are also limitation to the completeness of details we can provide in such presentation. So, with that let's review the highlights for the quarter. Revenues came in at $92.5 million, which was in line with our guidance of $90 million to $93 million. Average time charter equivalent earnings for the ships were slightly above $80,000 per day, also in line with the guidance for the year of about $80,000. This resulted in strong numbers with adjusted net income of $35.2 million for the quarter, translating into $0.66 per share. During the quarter, we completed the balance sheet optimization program, where we have refinanced all the 13 ships in our fleet with attractive long-term financing. Through this process, we have also released $387 million of cash proceeds in total, and this boosted our cash balance at quarter end to $475 million, an all-time high which translates into about $9 per share in cash. We have also recently carried out the first two dry dockings of Flex Endeavour and Flex Enterprise, both according to schedule and budget. During Q2, we will do another two dockings, so in total three dry dockings for Q2 and this result in revenues for this quarter being guided at $85 million to $90 million. Once we have completed the dry docking program in June, our quarterly revenues will pick up in Q3 and Q4 with quarterly revenues of around $90 million to $100 million for these two quarters. So, we are also reaffirming our revenue guidance of $370 million for the year, which should translate into an expected adjusted EBITDA of around $290 million to $295 million. So, with quite a strong financial position and minimum 57 years of contractual backlog, our Board has decided to once again pay out our quarterly ordinary dividend of $0.75 per share. During the last 12 months, we have thus paid out $3.75 per share in dividends and this has given our investors an attractive yield of around 11%. So, that's the highlight. Let's continue. So, as I mentioned we are reaffirming our revenue guidance of $370 million for the full year 2023. As you can see here in the graph, Q1 revenues this year was significantly stronger than last year as we had limited our spot exposure to one ship on variable higher time charter and actually spot market was pretty firm during Q1. For Q2, as I mentioned, we have three ships which will be doing dry docking during this quarter and Q2 is also usually the softer spot market and this will affect the one ship we have on variable TC. Once we have done with June and getting into Q3 and Q4, all these 13 ships will be in operations and usually, we will see the seasonal uptick in charter rates during Q3 and Q4, which is also evident from the forward prices and thus revenues will grow to closer to $100 million for those quarters. So as I mentioned dry docking, we have been doing our first dry docking the two first ships Flex Enterprise and Endeavour was delivered early 2018 and I will now do for the five-year special survey. Flex Enterprise carried out this in March while a sister ships Flex Endeavor carried out a five-year special docking in April both in Singapore. In our last presentation, we guided that in total these four drydockings would take out 80 days to 90 days of operations of 20 days to 22.5 days. On average we have managed to do this within 18 days. So we are slightly below time and we asked also on the low side of the budget. CapEx in total for each ship $4.5 million versus guided $4.5 billion to $5 million. So in Q2 as I mentioned Ranger and Rainbow will also be docked and these are to be completed within June and the ships will then be in operation for the full Q3 and Q4. So as I mentioned high contract coverage 57 years of minimum contractual backlog. This slide is the same as we had in our Q4 presentation. During last year, we did extend the contractual backlog on several ships as you can see here with rainbow being an extended 10 years and the vigilant amber enterprise and range. All these ships were extended for longer durations. And the first fully open ships we have today is Flex Ranger early parts of 2027 and Flex Constellation middle 2027 if the charter is electing to extend her for the three years which they have an option to do. So I think in terms of these durations we have a good coverage now. In near-term when export growth is to be expected to be muted and then we have open shifts from 2027 once a lot of new LNG is coming on stream and where we are also competing against new buildings at very high prices as I will come back to in the market section of the presentation. And once again our dividend decision factors. As you can see here for this quarter we are paying out the $0.75 of ordinary dividend per share. We have paid out two special dividends the last year $0.50 for Q2, $0.25 for Q4. So in total the last 12 months we have paid out $3.75 of dividend which gives a yield of 11%, 12% depending on where the share price is. So we think this should give our investors an attractive yield. All the parameters here are green. We have good earnings. Market outlook is good. We have this big contractual coverage. Liquidity at $475 million is super strong and then we don't really have any debt maturities before 2028 at the earliest. On the considerations right now I think most people are a bit focused on the aggressive Fed ramping up interest rate on the short-term side where we do have a very inverted yield curve and Knut will discuss a bit what kind of opportunities this has given us in the swap market. So with that, Knut I hand it over to you too. Thank you.

Thank you, Oystein. And as already mentioned revenues for the quarter came in at $92.5 million. That gives us a time charter earnings average for the fleet of close to 80,200. OpEx another strong quarter where we maintained OpEx control where we have OpEx per day of 13,400. If we look more into the details. On the revenues we have $5.5 million lower than last quarter. And that is driven by lower seasonal earnings on the variable hire contract and the off-hire days related to dry docking of the Flex Enterprise. Then we have some more non-cash item on the income statement. The net loss on derivatives is $2.8 million. As you can see in the notes on the side, it's $7.8 million in unrealized mark-to-market loss from the derivatives. And then we have realized gains of $5 million from the swap portfolio which is sort of our carry cost. With the completion of the balance sheet optimization program, we have exit cost of our debt. It's $8.8 million of write-off of debt issuance costs and then a termination fee of $1.4 million. That gives us a net income for the quarter of $16.5 million or earnings per share of $0.31. Adjusted for the non-cash items, we have adjusted net income of $35.2 million and then resulting in adjusted earnings per share of $0.66 per share. So let's have a look at the details on the adjustments that we have made to arrive at the adjusted net income. If we look at the quarter-on-quarter differences on the net income, operating income is $6 million lower, driven by the off-hire in connection with the drydocking of Flex Enterprise and the seasonal lower revenues under the variable higher contract for the Flex Artemis. Quarter-on-quarter adaptation cost is $8.5 million, which is basically driven by the completion of the refinancing under the balance sheet optimization program. And then derivatives where we had the mark-to-market loss were here on a quarter-on-quarter basis $7.7 million. With the smaller order FX, we arrive at a net income of $16.5 million. And when we then reconcile to adjusted net income we add back the non-cash items, which are the debt issuance cost, write-off in total together with the termination fee of $10.2 million. And then we have the unrealized market loss on the derivatives of $7.9 million and then a smaller FX effect on our NOK portfolio. So in total, we adjust them back and arrive at an adjusted net income of $35 million $200 million. The balance sheet remains robust and clean with an all-time high cash position of $475 million and we have an equity of $871 million. That gives us an equity ratio of 31%. If we look at the cash movements for the quarter, we increased the cash balance by $143 million, which is mainly driven by the completion of the balance sheet optimization program, where we have a net proceed of $196 million. And then net of the dividends paid last quarter of $54 million, we end up with an all-time high of $475 million. During the quarter, we have been active with our hedging portfolio. We have utilized the market when the interest rates have been high to lock in the market value on some of our swaps. Here we have -- for those who recall, we had a 2.5 years $181 million swap at -- where we are paying fixed 0.9%. When the market rate was high at here at 4.8%, we locked in that market value by doing a so-called mirror swap, where we will receive 4.8% fixed and pay the 0.9% to the bank. And that locks in $15 million of market value, which will be distributed back to us over the remaining period of that swap. We have also increased our hedging portfolio when the short-term interest rates dropped. In total, we increased with $260 million. And then, we also added $50 million of 10-year swap. That gives us a total swap portfolio of $820 million and as you see at very attractive rates. And in combination with the fixed rate elements of our leases of in total here $205 million, we have a net hedge ratio of 62% and then remaining, there around 60% to 65% for the coming quarters. So this is net of the $400 million RCF capacity we have. So by increasing the RCF capacity, we have also effectively increased our hedge ratio. So, if we look at our financings, we completed the refinancing exercise last quarter with in total six vessels. That gives us now a debt funding portfolio where about 50% are long-term leases, and then $441 million of amortized term loans. And then we have the RCF of $400 million, which is bullet for the full tenure of the loans. And by that we have pushed out, the debt maturity profile, so as already mentioned by Oystein. First maturity is in 2028. And if we utilize an extension option at no cost for two of our leases, the latest one are then to be refinanced in 2035. So with that, I hand it back to Oystein.

Thank you, Knut. Okay. Let's have a look at the market. LNG export change in the first four months of the year, the period January to end of April, we saw about 5% growth in the market. And for the first time in a long time, actually the biggest driver was North America because of the outage on the Freeport export terminal in the US. So the growth came from Qatar and Australia, the two big other players in the LNG export market and then actually Norway as well where we had the Hammerfest plant running now for the full quarter. Other countries contributed by about 2.5 million tonnes. On the import side, we do see the same trend we saw last year, where Europe is really gobbling up spot cargoes in order to replace the lost volumes from Russian pipeline gas. So -- and in Asia, it's been a bit slow start for China. Growth was flat during January and February. And then we did see that growth in the Chinese market started to fire up from March and onwards as they have been lessing the -- or basically scrapping the COVID policies they have had in place for some time now. If we look at the gas prices, it's been a very volatile ride last -- during the summer of COVID European gas prices was as low as $1 per million Btu, or translating into let's call it $6 per barrel of oil. After the Russian innovation of Ukraine really we saw a big rally in global LNG prices where Europe bought up a lot of spot cargoes. And we saw a peak of European gas prices at about $100. So we had a rent from $1 to $100 on the gas prices this equates to about $600 per million for a barrel of oil. But now we have had a big slump in gas prices. We have had a mild winter here in Europe and we have also seen the high prices have really incentivized people to cut down consumption and prices have no balance down to around $10, $11 per million BTU. We are actually -- LNG becomes competitive towards oil. Basically, we are now being traded at let's call it $60 per barrel of oil equivalent and that is also feeding up demand from Asia where we have seen more interest now to buy LNG in the spot market as prices have come down. Henry Hub is basically flat lined. It's also been quite volatile, but now the prices have really come down in America, which means that still with $10, $11 for the spot prices. It's immensely profitable to sell these cargoes into the global market from the US market. So in terms of America, we do see here the growth in exports. We had in -- during COVID, of course, we had a lot of voluntary cancellations. We had some cancellation during the big fees in February 2021. And now last summer, when you had the explosion at the Freeport terminal in US, we have had significant downtime on the plant. It's now bounced back. But in total 128 cargoes assumed by S&P Global that has been canceled or 9.5 million tonnes, but now exports are ramping up again. And we do see and expect that US will become the biggest export of LNG in 2023, with pretty healthy growth 14% according to EIA for the year. The other big player in the LNG market is of course China. So China became the biggest importer in 2021, so passing Japan at about 80 million tonnes equivalent of imports, which is basically the production of US last year. So far we -- this is something we follow closely to see how the reopening of China is affecting demand. And I guess, it's a big million dollar question for most investors these days. We saw flat growth in January and February as I mentioned, but then we saw LNG demand picking up March and April, which have on average 17% growth for those two months. So it's a bit too early to conclude, but there are some positive sentiments towards Chinese imports and especially when prices are at these kind of levels. EIA and energy aspect expects Chinese LNG demand to grow 10% 15% this year, which will then result in China going from about 64 million tonnes of imports last year, to about 70 million tonnes, but this is still 10 million tonnes below the imports of 2021. So, we do expect to see continued growth of the Chinese market and the Chinese buyers are signing up to a lot of SPAs. China has contracted LNG volumes of around 70 million tonnes, but they are big buyers of new volumes as well. So the story about Chinese LNG import growth, is far from over. As I mentioned, European gas market has had a lot of focus, with the situation in Ukraine and with the Russian pipeline gas flows tapering off. We have in Europe this year, been in Cadillac. It's been a very mild winter. And this together with the high prices, have resulted in a lot less gas demand in Europe, which have then resulted in storage levels keeping up, at pretty good level. We have seen storage levels above historical range. The injection season now is a bit slow. So we are getting into the customary range for development of the gas storage level. So, the big question this year is, how strong will the import demand be from Asia? How fields will competition be in terms of prices? Will Europe then be able to get these inventories levels up to a satisfactory level before winter? And as I mentioned, again, the drivers there in the market is the competition between Asian and European Gasmet. Let's see spot rates or the freight market, we are not really that exposed to the freight -- spot freight market any longer. 12 or 13 ships are on long-term charters, with a fixed rate. We have one ship, which has been on a variable higher TC or which is on our variable higher TC optimist [ph] Q1 pretty good levels here. You can see on the light blue line on the left-hand side, that the market during Q1, was pretty good, but has followed the seasonal normal usually rates come down to earth during the spin. Right now, we are basically on our average level, for the last couple of years. And then this dotted line is where the future market is. So as I mentioned, when we have been guiding on revenues for Q3 and Q4, we do expect to do that reality will follow this path where rates are expected to be in the $200,000 plus, at the end of the year. Another thing to note, we have mentioned this also in the past is the fact that, a lot of the big players there they have chartered-in ships on longer-term contracts. And there's really a few independent owners left, in the spot market, which means that most of the fixtures, which there are a few of, but the ones being concluded is mostly of relets, where people with -- or players, traders, portfolio players with the gap in the program or subletting our ships for shorter duration voyages, while independent owners are very limited involvement in the spot market these days. So another reason why we are a bit about the long-term outlook is newbuilding prices, which have just keep on moving upwards. We are at around $260 million for newbuilding prices for LNG carrier today, you are quite lucky if you managed to get still a ship for 2027. The window is now closing in on 2028 deliveries. So these ships that have this price tag for delivery of 2027, 2028, those are the ones we are competing with. And in order to get a reasonable return on your capital when making such a big investment you need higher rates. And that's where rates have gone. The five-year time charter rate has stabilized at a very attractive level of around $135,000. But actually to be fair, most people who are ordering ships at $260 million, they are not looking for five-year time charters. They are looking for time charters of 10 years plus. So that's the one we are competing with and that makes us upbeat about being able to extend our ships for longer duration at higher rates, eventually when they come open, as we have demonstrated our ability to do also in the past. So if we look at the order book it's huge, and it's been – keep ongoing. We have seen some slower activity on ordering, given the lack of available slots and given where prices have been going. But a positive sign is at least that there's not a lot of speculative orders. Most of the ships, about 90% of the ships under construction are committed to long-term contracts. And as I mentioned here, you can see that the order book for 2028 now is already filling up. So if we look at the product markets, the installed capacity of LNG exports at the end of March was about 465 million tonnes I – we are not utilizing the full capacity. We do expect total export for 2023 to be around 415 million to 420 million tonnes. So there are some downtime on installed capacity. There is also a lot of capacity being constructed, especially in North America and then of course in Qatar, where they have a huge expansion. So if you look at the projects being under construction and coming on stream near-term, this volume goes up to $621 million. And we do expect more projects still to be sanctioned. So we are looking here at the market of, let's call it around 770 million tonnes in 2030. And this growth of liquefaction capacity together with the phaseout of older steam, tonnage is what is attracting demand for modern ships like we have in our portfolio. So that's it. I think we can then conclude by going through the highlights just shortly mentioned revenues in line with our guidance $92.5 million. We had average time charter equivalent earnings of about $80,000 also in line with our guidance. This resulted in adjusted net income of $35.2 million or $0.66 per share. We have completed the balance sheet optimization program. It's been a process now going on for about one half year, where we refinanced all the 13 ships and boosting our cash balance as I mentioned at $475 million of cash at hand, at quarter end or $9 per share. We have started our drydocking schedule. Everything is going well. Both two force chips have been completed according to schedule and budget and we are now planning for the two last drydockings for the year, or expected to take place in June. We are reaffirming our revenue guidance for the year $370 million. Revenues next quarter will be a bit softer, because of these dry dockings but ships will be in operation again full capacity from Q3 where revenues are expected to pick up again. So with a good financial position and our big charter backlog. We are pleased to once again pay out $0.75 per share in dividends or $3.75 per share in the last 12 months, which I hope give our investors an attractive yield investing in Flex. So with that, I think we take a short break before we come back with our Q&A session where as I mentioned you can win our Flex on the beach summer kit. Thank you. Okay, Knut. I think before we start with questions maybe we can show the gift we have this time. This time, we have a summer team as I mentioned Flex on the beach, beach towel, together of course you need some protection with Flex on the Beach, Sunscreen or cap of course. We have to include the isle of dividends shot this time as well. And lastly, our sunglasses. So, let's see who will win this nice summer package – and I think we have a lot of questions today, Knut.

Yes. Thanks a lot for the questions coming in. There's a lot of questions, and we'll try to take them in order and sequence. But maybe, we can start off a question forwarded from the investor Janne Harrington. She was on CNBC and put up a couple of questions and they've been forwarded.

Okay.

So -- and that starts off with, how does the low natural gas prices in the US impact Flex LNG?

It's a complex question. That's a more answer than just one. It's short term and long term. Of course in the long term, if prices for natural gas stays very low in US, of course, this will centile new drilling activity, which is of course crucial in order to hold production up. This has not been a problem so far. We set new records all the time on US gas production. And one of the reason is that, wells are becoming more gases as you are drilling. But you need to have a sustainable return on equity on our capital in this project. So we don't really like that prices are this low. Of course, short term wise that means that exporting cargoes out of US is very profitable, because the price difference between US gas prices and international gas prices are bigger, which means that those people exporting cargoes are making more money on LNG, and this is also the case actually on LPG. So, it's a bit like the story about Goldilocks. You don't want it to be too hot. You don't want it to be too cold, so you need to find some kind of sweet spot. I think luckily, of course, most -- a lot of the wells you're not really drilling for gas some -- the wells you're also drilling for oil and the gas is just associated gas. So, you also have to see it in connection with oil prices, which have been pretty firm. So as long as oil price is pretty firm you will be drilling for oil and usually then you will find associated gas. But where you are looking for dry gas, you need probably to have higher prices in the US than what you have had today. But keep in mind, gas prices in U.S. has also been quite volatile, where there have been periods of time, where people have been taking in also on selling gas domestically in the U.S.

And then it's a question on shipping, and shipping has historically been a volatile sector, or there are different segments into it, but mentions that historically investors have been burned on shipping companies. What's the difference with Flex? Does the charter agreements make it different than other shipping companies?

Yes, of course. Shipping has always been volatile. So it's a derivative of the global GDP, and usually trade historically at least have been growing quicker than GDP. But this was also a problem on the downside when GDP growth slows less shipping activity. I think what makes Flex difference from most commodity shipping segments is, of course, the fact that we have taken out a lot of this commercial risk by fixing our ships on long-term charters, where we have very high level of earnings visibility. And this you can also see earnings and revenues. So if you look at the revenue graph, we're showing for the guidance for this year, there were small changes in the in the revenues from one quarter to the next, because of the stability. We have two long-term charters. And also actually revenues are quite stable over the years not only the quarters. So I think we are different in that regard, because we have a bit different commercial strategy than most commodity shipping companies.

And that brings us into the dividend and how secure it is with the U.S. treasury yielding 5% is Flex in internati for people looking for higher yield?

Yes. Those [ph] have had a bad time since global financial crisis, because actually they have had pretty bad the last 40 years or so, because interest rate be going down and the yield you are getting on your savings become less and less -- more or less every year. Now the last year or so it's been picking up, but real interest rate has been still been pretty low because of the high level of inflation. Yes, 5% is the short-term interest rate today. I don't -- but markets don't really think that yields will stay at this elevated level short term, while one-year treasury yields is 4.8% today, three-year is 4%. And then if you go all the way to 10 years you are back to 3.5%. So I think if you are investing for income investing what you're getting in a safe asset today. Let's see, we have a debt ceiling coming up here, but it's a fairly safe investment tenure government bonds in the U.S. That gives you 3.5%. We are giving a much better return. As I mentioned about 11% yield here the last 12 months based on the dividend. Of course, this dividend is also safe in the fact that we have no ships open this year. The earliest possible ship is next year where we have this 95% coverage if you assume options will not be exercised. We think it's more probable than not. And actually then the first open ship is 2027. So that gives us a very visible cash flow of income, which as we have also said in the presentation, these earnings belong to the shareholder and we are motivated to pay that out as dividend and that should give you a much better yield than what you are getting on government bonds these days.

So then let's turn to the questions on the market. What's your outlook for your LNG transport out of US for 2023, 2024?

I think last quarter ,our Q4 report, we had a graph on our projected supply situation for 2023. We are assuming 16 million tonnes of growth growing global exports going from 400 million to 416 million. This might be a bit low when we see the EIA numbers. But half of that is US. So kind of the free port coming back on stream is most of this effect. And then the remaining growth is from rest of the world. 2024 will be a year where we will have very muted export growth. But then from 25 and onwards there will be more exports. So that's why we feel it's been a good strategy for us to fix our ship in this window where global growth in exports will be low before this all takes off again from 2025 2026 2027 onwards when our ships are coming up.

And we then look at the import regions. Last year and this year, there's been a lot of imports to Europe. Is Europe and EU an important market for Flex?

Yeah. It's not really, we who decide where the cargoes will be flowing. We charter auto ships on time charter. So the charter will then have the opportunity to trade the ship worldwide including Europe and they actually instruct us where the ship will be going. So we don't really have an impact on that. They are deciding where they find the best price for the cargoes. But of course, with all the Russian gas coming through pipelines, which has been shut down, this means that Europe has a large deficit of gas. And basically what they have been doing now for the last year or so is to replace some of that Russian pipeline gas with LNG. Of course, there are not enough LNG to fill the whole gap and that's why Europe needs to be a bit patient here until new LNG is coming on stream. And until that, you will have a pretty tight market where we have seen prices at a level which has been demand destructing. Right now, prices come down to more fairly normal levels, but expectations is for higher prices when we're coming into the peak winter seasons.

And now with LNG pricing being more moderated. Have you seen Asia return to the import?

Yeah. We've shown it in a couple of graphs here that we see some more growth from Asia. We do see this also in the routing of our ships. We see more ships going to Asia than have been the case recently. And of course, suddenly then when LNG in all ways, let's call it 20% 25% discount to oil and coal prices are pretty elevated as well. That is stimulating demand. And I think it's stimulating demand and at a good time also because inflation has been high in Europe because of the high gas prices with the energy prices coming down now that will put less pressure on the inflation. And of course, with China reflecting their economy having actually cheaper energy prices will probably help in the recovery of the Chinese economy as well.

Then we have a question from Mike Ott [ph], which goes more on the fleet and the steam tankers. It's a topic you've covered over the years. But it's been mentioned that this will be uncompetitive and scrapped and that has not materialized that. There's been some scrapping, but it's been very low. And, of course, the reason for that is that the shipping market has been tight. There has been to solve -- in peril, it's been a total lack of ships available in the market. So when we have such high rates, people are trading the ships longer because still even our steamship, which has a lot of disadvantages compared to modern ships. They can still make a decent return. And I think as long as that is the case, the people have been trading them. And also keep in mind a lot of new regulation came in force from 2023 and onwards. So eventually as this regulation is tightened in terms of the CII requirements also the European carbon taxation, which is becoming increasingly more expensive to comply with. That will reduce the fleet of steamships going forward. So it's taken maybe a bit more time than some people expected, but this is mostly due to the very favorable freight economics, which then results in those ships leaving a bit longer than maybe some people anticipated.

Then we have questions on the open vessels in 2027. So if we start off with one timing of securing a contract that. Is it more realistic that these charters will be signed in 12, 24 or 36 months?

Yeah. I think, we evidenced it last year. When I went to our fleet list, we showed several of our ships. We extended quite a lot of ships last year. Most recently in November, we extended ships, which were not coming open before 2026 for longer durations all the way possibly to 2033. So we do see people now looking for ships for 2027 even people looking for ships for 2028. There are tenders there are discussions in the market. So I think we are well-positioned to participate in those discussions. And as I mentioned here we are competing against very expensive ships that need a high charter rate and probably a duration in order to defend that investment. So I think I wouldn't rule out that we will be able to also this year add more backlog to the fleet let's say we have 13 ships in operation. So every year we are losing 13 years of backlog. Hopefully we will be able to add more than 13 years of backlog, so that actually we are not eating off that backlog but rather expanding our backlog that I would say would be the aim and I don't rule out that happening within 12 months rather than the 24 or 36 months.

And a question from Min-Jung [ph]. Considering the aging technology gap between 2027 new building and the two stocks in the Flex fleet. Will the vessels achieve the same market rates as a new building?

Yeah, I think so because kind of the change in technology that has happened has, of course, happened abruptly. We had from steam to four stock medium-speed diesel electric ships and then eventually to the Direct Drive slow speed two stock ships. As you can see from the pictures here, we have both on the front page and on the docking slide, the ships are in prime condition. When they come out of yard, they look brand-new. And the propulsion system is actually the same you have in the new builds. It's a slope speed to stock engine. There might be some more gadget on a new ship for delivery 2027-2028. Maybe they have air lubrication system. But so far the effect of the air lubrication systems have been -- not everybody is as happy with it as the poster promise. Some ships might have a shaft generator, but that doesn't really affect much on the fuel consumption. It's really more effects on the OpEx cost or the maintenance costs. So there's not really any change fuel cost in that sense. So three of our ships have full reliq systems. Four of them have partial reliq systems. So I think these are comparable to the new modern ships that are being built now to $260 million. And also actually there is some benefit the fact that most of our ships are sisterships. They have been trading on most important export terminals and they already cleared. So every time you go to a new terminal you need to do a ship so compatibility study. We have done a lot of them. So all our ships more or less are kind of already vetted and approved for most terminals around the world. So -- so maybe there might be a small discount given the fact they are not as brand new, but the technology is basically the same.

And then we have -- moving on to the more on the balance sheet and the financing and Scott McFadden been looking at our long-term debt and total liabilities. It's been rising over the past quarters. He would like us to discuss our attitude towards the total debt levels. And if we have any plans to reduce that.

Maybe you should answer that.

Yes. So we completed this balance sheet optimization program basically refinancing the full 13 vessel fleet. That has been -- the background for that was the transition for Flex both on the backlog of contracts that's been building up and increasing over time. That gives us access to new capital or to new debt at better terms. So we have increased our repayment profile, reduced our credit margins, improved the maturity profile. So that's the argument for us for refinancing the full fleet. And then we have not really pushed for higher leverage, but we have released 40 -- nearly $400 million of cash and that has been structured as a bullet RCF. So if we have excess cash we can reduce the RCF and thereby also implicit the debt level as long as we don't need the cash. But it gives us the flexibility to act and support the business going forward.

Yes. So it means it's not amortizing for those who is not into refining industry and means really we have like a big $400 million credit line available at basically three days notice. We pay only around 0.7% interest rate per annum in the commitment fee to keep it around and it gives us a lot of financial flexibility. We don't utilize this at all time. We utilized at quarter end to show that we have this cash available, but it's a low cost of having. And also another factor here is that we have had the best financing market, I would say, since 2007. I was doing ship financing back then. Last time we had something similar good financing market, I would say, was 2014, our CFO then and I did about $2 billion of financing that year. I think actually 2022 has been a better financing market for us. So, Knut's been doing then yes, basically $2 billion of financing. And then we have secured that financing for a very long period of time from 2028 to 2025. So, that financed and locked in on very good terms, terms which I don't think is replica today given where funding costs from banks have gone up since the collapse of Silicon Valley Bank, Credit Suisse, First Republic. So, I think we are in very good shape. You should finance -- get financing when a chip and lock it in and that's exactly what we've done.

And on the graph we have on the -- or the slide we have on the balance sheet, you see there that the book values on our balance sheet is based on nearly all-time low vessel values when they were acquired. So, if you look at the leverage levels on the book values, they are rather conservative compared to the market values and also considering the contract backlog that we have.

Yes. And we are contracted ships when they were cheap we tried to as good as we can lock them in on long-term charters when rates are high and then finance them when liquidity is plentiful and cheap. So, I think we've done a pretty good job so far.

And that comes back to the recurring question about how to expand it. What's the plan for growth? How do you plan to spend the large pile of cash? Is it a reduction of debt, acquisitions, buyback, fleet growth?

Yes, I think we -- of course, the biggest item here is dividends. We paid out $200 million of dividend in the last 12 months or the last four quarters. So, that is of course the main source of spending money. We think newbuildings are pricing these days. If we order, I'm not sure, whether we get a '27 slot, maybe it would be '28. We have two ships coming up in '27, two ships early '28. We do think, it's been the business for us to fix those ships on longer-term contracts, rather than building new ships and try to compete with those ships with our existing fit. So we try to be disciplined. And we structured the financing as Knut mentioned on our very flexible manner, where the cost of having that debt is low. And then, we will see. This is a long LNG. It's a long-term business. So, we just try to be disciplined when call it new building prices are high. And then, we have access to capital cheaply, where we can act on opportunities if we see opportunities -- if not, we will just keep on doing what we're doing, fixing ships and paying dividends. And I hope that is appreciated by most investors.

I think, we'll round off then as a contender for the battle wells. Do you ever get tired of winning?

Well.

You don't have to answer. But I think we round it off and now it's a time to disclose.

Let's talk about the window, because that's going to be -- [indiscernible] who had a good question about technology on new buildings today versus the ships we have in our fleet. I think that's a good question. It's something we talked about in the past, but it's been a while since [indiscernible]. So congratulations to you, you will have the full summer kit.

And then, before we adjourn I just think I want to say thank you to all our seafarers, to all the people in the docks, who have done a fantastic job on Flex Endeavor and the Flex Enterprise dockings which has been perfect in terms of budget and timing and the ships are back with our charters who are happy to trade them again. We have two more to go this year. Next year, we will only have two dry dockings. So, with that I also would like to thank all or I would like to extend to our Norwegian viewers, that I hope you all have a happy constitution they have tomorrow, May 17 is the biggest day in Norway, whereas a lot of celebration. So, with that thank you everybody and we will be back in August with our second quarter presentation. We will also be in New York on June 20 and onwards for presentation. So, for those who are interested, maybe you can join the Marine Money Conference and we will do some presentation there as well. Okay. Thank you.