FLEX LNG Ltd

NYSE:FLNG

Earnings Call Transcript 2021-Q1

[Operator]

Good day, and thank you for standing by. Welcome to the Flex LNG First Quarter 2021 Earnings Presentation Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Øystein Kalleklev. Please go ahead.

[Oystein M. Kalleklev, Chief Executive Officer]

Thank you, and welcome to today's Flex LNG webcast. I'm glad you could make it. I'm Øystein Kalleklev, the CEO of Flex LNG Management, and I will be joined today by our new CFO, Knut Traaholt, who will walk you through the numbers as well as providing a financial update a bit later on. Today, we will be presenting the first quarter results for 2021, and this is the presentation we have been looking forward to share with you. Please also note that the replay of this webcast will be available at flexlng.com and also on the Flex LNG YouTube channel. So Slide 2, disclaimer. Before we start the presentation, I will remind you of the disclaimer with regards to, among others, forward-looking statements, non-GAAP measures and completeness of details. And the full disclaimer is available in the presentation, and we recommend that the presentation is read together with the earnings report we also released today. So let's kick off on Slide #3, the highlights. The LNG market has been remarkably strong this year. We started off with a boom at the start of the year with both LNG product prices and freight rates going sky high. However, it's fair to say that these very high levels reflected a market more or less sold out for both cargoes and ships, so only a few cargoes and spot voyages were able to fetch these levels. And this is also basic economics. When something is scarce, it tends to be expensive, if in high demand with limited price elasticity and substitution. So the market cooled off by mid-February, driven by warmer winter in Asia, a flurry of newbuilding deliveries at the start of the year as well as the disruptions in U.S. due to the big freeze in February. The market, however, quickly rebounded by end of March and a quick turnaround also increased appetite by charters for term deals. Nobody really wants to be [ short ] shipping after the experience from last winter, particularly given the low gas inventories, which increases the odds for winter volatility this next season. We have utilized a strong market to execute on our strategy of securing a higher degree of employment visibility and thus derisking the company's freight exposure with about 22 years of minimum fixed [ higher ] employment secured since last reporting, and these charters are done at attractive levels, and I will cover this in more detail shortly. In 2019 and 2020, we had a multitude of factors playing against this strategy being the trade war between U.S. and China; 2 record [ warm ] winters in a row, adversely impacting gas demand; and then finally, the COVID-19 pandemic rampaging the world economy and thus also the energy demand. This also included LNG demand, even though LNG in contrast to nearly all other energy sources recorded a small increase in demand of about 1% in 2020, but this fell well below expectations of about 7%. However, this year, we will catch up a lot of this growth with 7% to 8% growth expected as we do not expect cargo cancellation this summer, given the strong demand growth. With the world economy set to grow healthy this year and a cold winter, which has dragged down gas inventories, the LNG market has rebalanced and freight rates have thus strongly bounced back. During the quarter, we took delivery of 2 more ships being Flex Freedom and Flex Volunteer, and we will have completed our $2.5 [ million ] investment program with Flex Vigilant set for delivery by end of May. So by end of the May, we will have [ 13 ] state-of-the-art LNG carriers on the water. Despite the challenges imposed by COVID-19, when it comes to crew changes, inspections and services, we have continued to operate our ships with excellent safety and operational performance. Our LTI, lost time injury was 0, 0, 0 in 2018, 2019 and 2020. That is actually [ a fight ] for us. We recently had a small injury, so the LTI frequency, which is injuries per million hour worked last 12 months, is currently 0.09. Although this is way below the industry standard, we intend to bring this back to 0 again. I'm also pleased to say that only 2% of our crew is currently overdue on their contracts, which compares very favorable to the rest of the industry. So once again, a great thanks to our seafarers and onshore personnel for making the propeller run. Our technical team has more than [ 200 years ] of experience, so they are not new to shipping. Our top management, consisting of Knut, Ben, Lars and myself, have also worked in shipping and LNG for most of our careers. J. Mintzmyer actually made me aware today that Flex LNG is the only shipping company in his research coverage with a straight A rating for management. In terms of financials, I am pleased that we delivered revenues of $81.3 million, in line with guidance of $80 million to $90 million when we reported on February 17. At the time of reporting, we had 13% of remaining days to be booked as well as 3 ships on variable higher contracts linked to the spot market rates. The market took a nose dive from the middle of February until end of March for reasons already described, and this is why we ended up in the lower end of the guidance range. Nevertheless, we delivered a TCE of $75,400 in first quarter, slightly ahead of $73,700 in fourth quarter. This resulted in an adjusted net income for the first quarter of $34.2 million or $0.64 per share. As long-term interest rates rebounded in 2021, driven by improved economic outlook, we booked our $13 million gain on our interest rate swaps utilized for hedging. And our official net income was therefore $47.2 million for the quarter, translating into $0.88 per share. As you might recall, our official earning numbers last year were dragged down by unrealized losses on such derivatives due to [ plummeting ] long-term interest rates, but we see a reversal of this now as the world are recovering gradually from the pandemic. It's also worth reminding you all that we have secured long-term attractive financing for all our ships, including Flex Vigilant, set for delivery by end of the month. And we also have a super strong liquidity position with $139 million of cash at hand at the end of first quarter. This healthy financial situation, coupled with the strong contract coverage, gives us ample room to pay an attractive dividend and also potentially buy back more of our stock. Hence, we are, therefore, pleased to announce an increase in the dividend from $0.30 of our fourth quarter to $0.40 per share for the first quarter. With the current stock price of around $13, I believe it's a bit tough today. This translates into an annualized yield of about 12%, which should be effective in the current low interest rate environment. Our stock's still trading below book value of about $16 per share. Our book of balance sheet consists of [ brand-new ] ships on the water, acquired at attractive prices compared to today's newbuilding prices, which are going up. Additionally, all our ships are attractively financed and today, the ships comes with an attractive backlog as well. Thus, we still find it attractive to buy back our stock. During the first quarter, we, therefore, bought back 593,000 shares, representing about $0.10 per share, bringing the total to 800,000 shares bought back. The Board has therefore decided to increase the cap under the buyback program from $12 to $14 per share, which is still approximately 12% discount to book value. Slide 4. So in Flex LNG, we don't execute. We Flexecute. As mentioned in the highlights section, the LNG market has recovered and rebalanced. The Asian and European spot LNG or gas prices, JKM and TTF, which fell below $2 and $1 at nadir of the COVID-19 pandemic, are now at around $10 and $9. This is 5x to 9x higher than last year at this time of the year and strong also in historical perspective for this time of the year. With better market, there are also been better opportunities for us to carry out our intended strategy of fixing our modern ships on longer-term contracts. When we expanded our fleet in 2018 from 6 to 13 ships, we also took the decision to recruit and build up a top-notch in-house technical management. Flex LNG fleet management received its driver license or documents of compliance, as it's called in shipping, about a year later in October 2019. And during the end of 2019 and into 2020, we gradually took over the management of all our ships in-house. Having the ships in-house means we are more in control of how we operate our ships. And this should, in our view, as we have said before, put us in a better position to attract longer-term contracts as major LNG traders tend to prefer owners with in-house organization, given the mission-critical nature of LNG ships in the LNG value chain. However, long-term contracts doesn't just arrive at the door step. Charters want to see the organization actually delivering great performance. And this, we have certainly evidenced through the stress test imposed by COVID-19. We also took the prudent decision to finance the company with ample equity and flexible long-term financing for all ships to be able to trade our ships spot and rather pick the right moment to execute on our strategy when the time was right. And 2020 was certainly not the right year to fix ships on long-term fixed higher contracts given the upheaval in the market. So during the last month or so, we have fixed 6, possibly 7 of our ships on attractive term employment. On April 14, we announced an agreement with Cheniere to fix 3 ships in 2021 with them and 1 or possibly 2 ships in 2022. Flex Vigilant will be delivered to Cheniere on a 3-year contract ex-yard end of the month. Flex Endeavour has already commenced the charter with Cheniere as we agreed early delivery of this vessel with the charter -- charter duration thus expanding to about 3.75 years minimum duration. We also plan to deliver Flex Ranger on a 3.5-year contract to Cheniere in third quarter. Next year, Cheniere will take 1 or 2 of our ships. This also on 3.5 years' time charters. These vessels will be nominated ahead of delivery. So it's still not sure which vessel will be delivered to Cheniere. Under our agreement, the charter also have the option to extend all vessels by up to 2 additional years. Then on 17th of May, we agreed a 3-year time charter for Flex Constellation with a major trading house. The time charter was basis for delivery, so Flex Constellation has already commenced this charter. Under this agreement, the charter also has the option to extend the charter by up to 3 additional years. And lastly, last night, on May 20, we agreed to fix Flex Freedom on a 3- or 5-year time charter with a portfolio player, with commencement of this contract in direct continuation of our existing time charter elapsing in first or early part of second quarter of 2022. We will be notified in a [ box ], whether it will be 3- or 5-year minimum term period, and such notification is due in third quarter this year. The charter will also have the option to extend this contract by 2 additional years. This time charter remains subject to final documentation and customary closing conditions. So Slide #5, fleet composition. So let's have a look at our fleet composition after the recent flurry of Flexecution. In total, since reporting in February, we have added 22 years of firm backlog to our fleet, with up to an additional 20.5 years of optional backlog. Hence, our earnings visibility has been transformed as a consequence of these fixtures. Today, we have 3 ships linked to the spot market through variable higher contracts. These are Flex Enterprise, which is on her third year of a variable higher contract with firm contract coverage until end of first quarter next year, but where the charter has the option to extend that by another 2 years. Flex Amber is on a similar contract into Q4, but the charter can also extend by 2 additional years. Last, the vessel on variable higher contract is Flex Artemis, which we secured a minimum 5-year contact with Gunvor at the end of 2019, with commencement of a charter in connection with delivery of the ship in August last year. Gunvor has the option to extend this contract by up to 5 additional years. We now also have a substantial part of our fleet on long-term fixed hire contracts. As mentioned, Flex Freedom is currently fixed on a 10-month time charter maturing in end of Q1 next year, with our 3- or 5-year time charter in direct continuation with our portfolio player. Flex Constellation was recently fixed on a 3-year time charter with a major trading house. Then, we have Flex Endeavour, which has already commenced her 3.75 years' charter with Cheniere, with Flex Vigilant set to join her on May 31 and Flex Ranger during third quarter. Then, Cheniere will take 1 or possibly 2 ships on 3.5-year time charter in third quarter next year. Hence, we can pick and choose from our existing ships. But for simplicity, we have included Flex Courageous and Flex Aurora as optional -- and Flex Aurora as the optional ship for the Cheniere contract. Flex Courageous is currently on an 11-month fixed hire time charter and will be redelivered to us at the end of Q1 next year. Flex Aurora is also fixed on -- on a fixed hire time charter, where the charter has the option to extend the ship for an additional 6 months, taking her into Q1 next year. Flex Resolute is also on a similar contract, where the 3 months extension option was recently declared, but where the charter can extend by another 3 months. In any case, these 2 positions are very attractive, so we would be perfectly fine trading these 2 ships in the spot market in case they are not extended. Then, we have Flex Rainbow, which is fixed on a 12-month time charter in Q1 this year with redelivery in Q1 next year, where the charter has the option to extend by another year into Q1 2023. And lastly, we have 1 ship remaining in the spot market today, Flex Volunteer, which is fixed into Q3. Given the positive outlook, we are very happy trading her in the spot market.So Slide #6, the backlog. So let's talk about visibility. As we have secured substantial backlog during the last month or so, our forward earnings visibility has also increased substantially with a minimum of 88% of the remaining days in Q2, Q3 and Q4 covered. As mentioned on the last slide, we only have 1 ship, Flex Volunteer, trading in the spot market with the possibility of having also Flex Aurora and Flex Resolute redeliver in Q3 or Q4 this year. But again, as I mentioned, these are very good position we would be happy trading spot as these periods also coincide with the winter market. We also have 3 ships linked to the spot market through the variable higher contracts. So we are exposed to the spot market through these 4, possibly up to 6 ships, while the rest of the fleet are on fixed hire contracts. This means we can fairly accurately predict the revenues for the company for the rest of the year under normal operations. As we have been in investment phase through 2018 to second quarter this year, we have incrementally [ gone ] our fleet of ships on the water during this period. We started up 2019 with 4 ships on the water and closed the year with 6 ships on the water. During 2020, we added another 4 ships on the water, while we are adding the remaining 3 ships to our fleet in 2021. Hence, it should not come as a surprise that our revenues are growing. This also means that, finally, all the equity invested in the company is being employed in productive assets. As in the past, a substantial part of our equity has been tied up in vessels under construction, which returns are 0. Second quarter is normally the weakest quarter in the year, and this, we also expect to be the case this year, with around $65 million of assumed revenues for this quarter. The quarter is fully booked. So the unknown factor is the earnings we will be making under the 3 variable hire contracts in our portfolio. In third quarter, we have also a high booking. So variation here is mostly linked to spot earnings for Volunteer and the earnings under the variable hire contracts. But we expect revenues to bounce back to the level of Q1, as you can see from the graph. For fourth quarter, which tends to be the strongest quarter, although this year, Q1 was slightly stronger than Q4, we also have a high degree of days covered, as mentioned, but we expect covenants to grow closer to $100 million for this quarter. As we have had 3 ships for delivery in the first half of the year, with Flex Vigilant set for delivery by end of May, we also have no more CapEx commitment in the second half of the year. Hence, cash flow available for distribution to shareholders will, therefore, also be higher. So next slide, #7. So just to give a summarized before handing over to Knut. As we have mentioned in the past, we have the industry low cash breakeven of around $45,000. As you can see from what I've described, we have substantial backlog, not only in 2021, but also for 2022, '23 and '24. This gives us ample room to pay out dividends. As mentioned, our earnings -- or adjusted earnings per share in the first quarter was $0.64. We are paying out $0.40 as dividend. We have bought back shares for around $5.5 million, bringing the distribution to $0.10 per share. And then we also had 2 ships for delivery. So kind of the payments to the [ odd there ] was around $0.12 per share for those 2 ships. But given COVID, we have added some extra spares to the ships. Usually, when you take delivery of a ship, you are using around $2 million for spares and stores. We have more -- been more like $3 million each of the ships. So these are kind of a CapEx, which are invested in spares for the ships because it can be hard to get spares these days. So we have a payout ratio of the free cash flow here of in excess of 100%. But this is well covered with $139 million of free liquidity, no debt maturities before second half of 2024 and the strong balance sheet I mentioned. So then maybe Knut, you can go through the financials.

[Knut Traaholt]

Thank you, Øystein. Let's turn to Slide 8 and the income statement. Revenues for the quarter came in at $81.3 million, in line with our guidance for the quarter of $80 million to $90 million. This is up from $67.4 million in the previous quarter. The increase is due to the delivery of the newbuildings, Flex Freedom and Flex Volunteer, in January, and a slightly improved market with the fleet delivering a TCE rate for the quarter of $75,400 per day, up from $73,700 per day in the previous quarter. Operating expenses were $14.3 million in the first quarter compared to $14.5 million in the fourth quarter, despite that we had a larger fleet this quarter. This resulted in an OpEx per day of 12.9 -- $12,900 per day versus $15,300 per day in the last quarter. The difference is explained by higher COVID-related expenses in Q4. And despite the positive reduction in the operating expenses, we continue to face higher COVID-related expenses caused by challenging crew changes in quarantine, increased lube oil prices and additional cost of transporting spares and services to our vessels. These costs can be a bit bumpy as illustrated in Q4, but we are now back to a normalized level in Q1, and we expect smoother OpEx once the restrictions are gradually lifted. Adjusted EBITDA for the quarter was $64 million, up from $50.2 million in the previous quarter. Interest expenses were up in Q1 due to a full quarter of interest on the debt related to the vessels delivered during the fourth quarter and a full quarter of interest related to Flex Freedom and Volunteer delivered in January. Net income for the quarter was $47.2 million or $0.88 per share, up from about $28 million or $0.48 per share in the previous quarter. Adjusted net income was $34 million or $0.64 per share, up from $24 million or $0.45 per share in the previous quarter. The difference between earnings per share and adjusted earnings per share is, as Øystein explained, related to our interest rate hedging, where we recorded a net gain of $13 million in Q1 due to long-term interest rates bouncing back. But we used the adjusted numbers to smooth out this mark-to-market change of the interest rate instrument. Then moving to Slide 9 and our balance sheet. At 31st of March, we had [ 12 ] vessels in operation and booked as vessels and equipment. During the quarter, we took delivery of 2 newbuildings and added $372.5 million from the vessel prepayments to vessels and equipment, increasing in aggregate book value of the vessels to $2.2 billion. We have $54 million as remaining vessel prepayment relating to our last newbuilding, Flex Vigilant. She is scheduled to be delivered on the 31st of May to our fleet. As mentioned previously, once all ships are delivered, our balance sheet will be about $2.5 billion, comprising of 13 ships as well as our substantial cash holdings. Total interest-bearing debt stood at $1.4 billion at the quarter end, reflecting $20 million increase of the RCF under the original $100 million Ranger facility and adding drawdown of $125 million in connection with the delivery of Flex Volunteer and offset by $20 million in scheduled repayments. At the quarter end, we had a strong cash position at $139 million. Total book equity was $861 million, giving a solid equity ratio of 35% compared to our 25% requirement under some of our loans. Turning to Slide 10 and looking at our cash flow for the first quarter. In the first quarter, we had a positive net cash flow of $10 million. This comes from cash flow from operations of $48.4 million, and we had negative working capital adjustment of $4.5 million compared to a positive working capital adjustment of $14.4 million in the fourth quarter. The adjustment is mainly related to higher prepaid charter hire due to a stronger market at the end of the fourth quarter compared with the first quarter. On average, these working capital balances tend to even out, but as we are operating on only time charter basis, we receive charter hire in advance, which is advantageous from a working capital perspective. Scheduled loan installments were $20 million and in total, $20.7 million, including the scheduled reduction of the amortizing Ranger RCF. Net newbuilding CapEx was $11.9 million. And as mentioned previously, we increased the RCF under the original $100 million Ranger facility with a $20 million nonamortizing tranche, adding additional liquidity and flexibility. In November, we announced a share buyback program of about -- of up to 4.1 million shares. And during the first quarter, we purchased an additional 597,000 shares for $5.3 million or $8.80 per share on average. This, together with the $0.30 per share dividend for the fourth quarter or $16.1 million, was paid out during the first quarter. In conclusion, we had a positive net cash flow of $10 million, which leaves us with a robust total cash balance of $139 million at the end of the quarter. Turning to Slide 11. This is a familiar slide to our frequent followers. We have, over the last year, secured a total of $1.7 billion of attractive financing for the fleet of 13 vessels. At the same time, we have diversified our funding base with the mix of bank financing, lease financing and ECA financing. As communicated at the fourth quarter presentation, we had secured commitment for the $20 million increase under the $100 million Ranger facility. And the amendment was signed in March and then the amount was fully available thereafter. We have hedged the interest rate risk with interest rate swaps for a nominal amount of $674 million at quarter end. During the quarter, we terminated 2 swaps and used a positive value to enter a new swap at a lower fixed rate. The average fixed rate -- fixed interest rate for our swaps is 1% -- 1.15%. Together with the leases on fixed rate, we have a hedge ratio of about 66%. All in all, we have a very comfortable debt maturity profile with the first maturity due in July 2024. And this is provided by a pool of 15 different financials institutions. And over the years, we have demonstrated our ability to raise attractive funding also during challenging times, both in the fiscal and the financial markets as we have a very strong support from our wide banking group. And with that, I hand the word back to Øystein, who will give an update on the market.

[Oystein M. Kalleklev, Chief Executive Officer]

Thank you, Knut, for the financial review. I am telling for you, you really picked the right job. So Slide #12. We start off the market section with a snapshot of LNG exports and imports in the first quarter. In the first quarter of 2021, exports were close to 102 million tonnes -- 101 million tonnes according to Kpler data. This was slightly -- was in line with last year despite the lost cargoes due to the big freeze in Texas during February as well as some other supplier disruptions during the quarter. Keep in mind, volume growth in first quarter of 2020 was very high as this was prior to the COVID-19 pandemic going viral on a global scale. What is different from last year is that we saw considerably more pull from Asia, and particularly, China as the winter weather in Asia at the start of the year was very cold with snow records in Japan and the coldest winter in Beijing since 1966. So strong demand from Asia also resulted in increased sailing distances. And this, coupled with Panama congestion, spot-on unprecedented rally in both freight and product prices at the start of the year. As we explained both in our Q3 report in November and our Q4 report in February, we have been very bullish on volume growth in 2021 with estimated export growth of about 25 million tonnes in 2021 as [ product ] prices started to rally last autumn, and this have now started to become the consensus view. So as you can see from the graph to the right-hand side, we expect 7% to 8% export growth in 2021, which will be supportive of the freight market which we will cover on the next 2 slides. So turning to Slide 13, the spot market for freight. As mentioned in the highlights, the boom at the end of 2020 continued into 2021, before softening by the middle of February when we were reporting our fourth quarter. However, the downturn was short with the market bouncing back by end of April. As usual, we saw the first -- saw this first the with ballast bonus conditions going from full round-trip basis in January to one-way economics by end of February, before we start to see green shoots in March with ballast bonus conditions turning back to full round-trip again by the middle of April, and thus pushing up the time charter equivalent earnings in the spot market. By end of April, going into May, the freight market was unseasonably strong, with spot rates for modern tonnage, i.e large MEGI or X-DF ships, approaching $100,000 per day in the Atlantic, with somewhat lower rates in the Pacific as newbuilding deliveries kept vessel available -- availability higher in this basin. As you can see from the graph on the right-hand side of the slide, availability of ships in Atlantic have been very low, except for during the big freeze in February in the U.S., when an export of U.S. was for a short period, it curtailed and more vessel became available in the Atlantic. The high freight rates have, however, affected the re-let into the market, and we have seen the market softening during the last 2 weeks due to slightly more vessel availability and rates for modern tonnage returning to around $80,000 per day in both the Atlantic and Pacific Basin. But these are very solid numbers for May, as you can see on the graph to the left. However, the re-lets in the market are typically only available for shorter durations as the traders and portfolio players typically want these ships back before winter season approaching, and this is thus not affecting the term market significantly, as I will illustrate on the next slide. So term market, Slide 14. Let's have a look at the term market for freight. In this graph, we show the term rates for 1, 3 and 5 years over the last year following the COVID-19 pandemic. As you can see, the 5-year TC assessment, flatline during most of the last year, as there was also limited interest for such periods by charters, which could fix vessels cheap in the spot market or for shorter-term business. The 1-year TC last year were at around $55,000 to $57,500 before turning sharply up from the beginning of April and now hovering close to $100,000 per day. The 3-year TC rate, which is less liquid than the 12-month TC, followed the 12 months TC rate closely before also picking up from April, now being at around $80,000 per day. So given the unattractiveness of term business during the last approximately 12 months, until we started to see the green shoots at the end of March, we elected to rather had the water play in the spot market. At the start of the year, 8 of our 13 ships were either trading spot or on variable hire contracts. Plus, we also had our last newbuilding open. Despite pursuing this strategy, we managed to sell in $60,000 in time charter equivalent earnings for 2020, while keeping our options open, which was much more attractive than fixing ships on poor rates for longer durations. Of course, we were in the fortunate position that we had financed our ships in advance and sat with a big chunk of cash. So we could afford to take the wait for better times approach, which was not the case for all owners. With term rates picking up recently, we have utilized the momentum to fix a large part of our fleet on term contracts at much more attractive rates than what was achievable last year and 2019 for that matter. So there is definitely some truth to patience being a virtue. So gas prices on Slide 15. As previously highlighted, gas prices started to recover over the summer last year. As we highlighted in our Q2 report last August, there was already, at that time, a La Niña alert for the winter 2020, 2021, which normally means the winter weather will be cold and longer in the major gas-importing nations. We, therefore, elected to keep substantial spot exposure over this period and made healthy trading results for both Q4 and Q1 as recently explained. The winter came a bit late, but when it arrived, it was freezing cold, and it also lasted for a very long time, especially here in Europe. Last autumn, we also experienced the most active hurricane season on record in the U.S., which caused supply disruption. In the short term, this supply disruptions were negative effect due to lost cargoes. But the supply disruptions also fueled deposit prices, with Asian LNG benchmark JKM going from a low of $1.8 during the early part of the summer last year to a high of $32.5 early 2021. The average price of the February JKM contract was $18, 10x the price during last summer. As you can see from the graph, the big freeze in the U.S. also led to a spike in the U.S. gas prices here represented by the Henry Hub index. Given the bull run in oil prices, U.S. shale drilling have become increasingly profitable. So natural gas prices have returned to sub-$3 level with forward prices also in this level. JKM prices are today close to $10, while European TTF gas prices is slightly below $9, driven up by increased demand; significantly higher carbon prices, increasing the switching band from coal to gas; as well as due to a significant restocking demand due to very low gas inventories after this cold winter, which I will return to on our next slide. So last point to make is forward prices for gas are at an entirely different level this year than last year, and this gives no incentive to cancel cargoes in U.S. or, for that matter, Egypt, which has become the new swing producer, and that's why we are also confident on big volume increases this year. So Slide 16, gas inventories. Gas inventories, as we started to highlight in our December 2020 presentation, the strong demand from Asia at the end of 2020 was pulling cargoes away from the Atlantic Basin and away from European buyers, with rapid depletion of gas inventories in Europe as a consequence. The Asian demand will continue into 2021, as I illustrated earlier, resulting in severe congestion in the Panama Canal and booming freight [ rates ] at the start of the year. We, therefore, continue to highlight in our January and February presentation that European buyers were being starved off from gas deliveries and therefore, had to continue to run down their inventories quickly. This was further aggregated by a cold and long winter in Europe, with record snowfall in Madrid and the high carbon price in Europe with [ C02 ] prices hitting above EUR 50, which meant that gas become increasingly competitive towards coal despite higher gas prices. Hence, we have been arguing for strong restocking demand over the summer, minimizing the chance of a repeat of the summer cargo cancellations. We thus became increasingly comfortable with the market situation for 2021 and elected to keep a very high proportion of our fleet exposed to the spot market at the start of the year, as mentioned, until we have [ no ] acted on term opportunities. European inventories today stand at only 33.5% a full, which is less than half the levels last year. European inventories are about 70 million tonnes equivalent of LNG. So the shortfall in European inventories are almost twice the volumes of U.S. cargo cancellation last year. And it is almost unconceivable that European buyers will be able to fill up inventories ahead of next winter. And this can spur gas prices and volatility, particularly if economic recovery is strong and/or if the winter is not even cold, but just normal. So Slide 17, the fleet composition. Last quarter presentation had a very long section about the new decarbonization rules for all ships or ships, or EEXI as it's called. We expect the new rules to be agreed by IMO in June. And these rules will take headaches, particularly for the owners of older steam tonnage, but opportunities for owners of state-of-the-art ships. I'm not going to repeat the lecture from last presentation, but it's available on our web page for those who missed it. What I would like to point out is that the order book, which some analysts thought was too big this year to make for our conductive freight market, is tailing off and a number of available and committed vessels have come down a lot with the recent increase in term interest. The mix of fewer available MEGI/X-DF ships, EEXI rules, generally higher newbuilding prices and the fact that a lot of older tonnage is coming off long-term contract will result in more opportunities for us to fix ships on attractive term charters. We are now focusing on our 2022 positions, given our high coverage for 2021. And the recent forward fixture of Flex Freedom illustrates this point an opportunity. So that's my last slide before summarizing. As I mentioned, revenues, in line with guidance. We have substantial backlog for 2021 already booked. Dividend, we are increasing this now to $0.40 in addition to the buybacks. All ships will be on water by end of the month. As I've covered in great detail, we have a positive market outlook with some restocking, and we are in a very good financial position with all ships financed, super strong balance sheet and lots of liquidity. So that's it for me. I'm happy to take some questions if there are any.

[Operator]

[Operator Instructions] There are no questions at this time. [Operator Instructions]

[Oystein M. Kalleklev, Chief Executive Officer]

Yes. Okay, once again, everything is very clear. It seems like telephone is going out of vogue. So maybe we should try to focus more on the chat function for questions next time. But until then, I wish you a very good weekend, a good spring. We will be back in August with our second quarter results, probably somewhere in the middle of August. I think market will be very healthy at that time. Don't rule out freight rates going into 6 digits by that time. We will probably see contango structure developing in the gas prices because of fear of Panama congestion. So I think I'm really looking forward to the second quarter as well. So with that, I wish you a good day.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.