FLEX LNG Ltd

NYSE:FLNG

Earnings Call Transcript 2021-Q2

[Operator]

Good day, and thank you for standing by, and welcome to the Flex LNG Q2 2021 Earnings Presentation Conference Call. [Operator Instructions]And right now, I would like to hand the conference to our first speaker today, our CEO, Oystein Kalleklev. Please go ahead, sir.

[Oystein M. Kalleklev, Chief Executive Officer]

Thank you, and welcome to today's Flex LNG webcast, where we will be presenting our second quarter results. I'm Oystein Kalleklev, the CEO of Flex LNG management, and I will be joined today by our CFO, Knut Traaholt, who will walk and talk you through the numbers a bit later in the presentation before we conclude with the Q&A session. [Operator Instructions]On the cover page today, we have a picture of our recent addition to the fleet, Flex Vigilant, which is our 13th and last ship for delivery. She was delivered according to plan on May 31 and immediately commenced a time charter with Cheniere with a minimum period of 3 years, and I will return to that shortly.So 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 detail. We also recommend that the presentation is read together with the earnings report, which we also released today.So let's go. Slide #3, highlights. The LNG market is booming. And if anything, we actually think the LNG prices are, at the moment, a bit too hot. The Asian spot LNG prices, JKM, is at about $17 per million BTU. This is the highest seasonal price in nearly a decade, and implies oil energy equivalent price of above $100. And keep in mind, Brent oil price averaged $99 per barrel back in 2014 when we saw these kind of LNG prices. So LNG prices are currently at a big premium to oil.Meanwhile, the European gas prices are trading at all-time high levels with the European gas prices, TTF above $15, driven by high carbon and coal prices as well as very low gas inventory levels. Low gas inventories are something we have pointed to in the past would be our supported driver of the gas market this year. Hence, with cargo prices at about $60 million to $70 million, there is ample room to pay premium rates for freight, which I will refer to in the market section.The second quarter is, however, traditionally, the weakest quarter in the year and not surprisingly, also the case this year. This is due to our combination that we are coming out of the winter and gas demand is generally at its lowest level in Q2 when there is less heating demand, and it's too early in the season for cooling demand. At the same time, we generally see more newbuilding deliveries at the start of the year as these tend to be skewed towards the start of the year, which is also the case this year.We have taken delivery of our last 3 newbuildings. And the last newbuilding, Vigilant, was, as I mentioned, delivered on May 31. We have just completed approximately $2.5 billion investment program and now have 13 state-of-the-art LNG carriers on the water, all generating revenues.As we presented in our first quarter presentation in May, we have utilized a strong freight market to execute on our strategy of securing a higher degree of employment visibility and thus derisking the company's freight exposure. We have recently secured attractive term contracts for 6, possibly 7 of our vessels with about 20 years of minimum fixed hire employment for the 6 ships.Despite the challenges imposed by the COVID-19 pandemic when it comes to crew changes, inspection and services, we have continued to operate our ships with excellent safety and operational performance. The Delta variant have created further complication to our operations, particularly in Asia, where vaccination levels lags U.S. and Europe, and this means crew change is still difficult to carry out in this region. However, I'm pleased to say we are working diligent on minimizing crew, which is overdue on the contract, and we have been able to maintain 98% of our crew on time and with no personnel now being more than 30 days overdue. So a great thanks to our seafarers and onshore personnel for a very good job done despite these obstacles.In terms of financial, I am pleased to say that we delivered revenues of $65.8 million for the second quarter, in line with the guidance of approximately $65 million. Our time charter equivalent earnings, or TCE, in Q2 was $57,800 and the year-to-date number is $66,300, which translates into healthy earnings.In Q2, our adjusted net income, this is the number adjusted for change in value of our interest rate derivatives, which tend to fluctuate, was $15.7 million or $0.29. This brings the adjusted net income for the first half of the year to about $50 million. With normal GAAP earnings, the number is actually $10 million higher, and this is a result which we are reasonably satisfied with.Despite raising our dividend to $0.40 in Q1, taking delivery of our newbuilding and buying back some stocks in the quarter, our cash pile grew by $5 million to $144 million at quarter end. $144 million of cash is a liquidity position, which we consider very comfortable, particularly given how we have derisked our business through building profitable backlog. Hence, the Board has decided to pay a dividend of $0.40 for Q2. This provides an attractive yield of slightly above 11% on an annualized basis as the stock prices have traded quite a bit down today for reasons I don't really comprehend given that we are delivering numbers in line with our guidance.As our stock is continuing to trade below both book value and particularly, replacement value of fleet despite all ships being on the water with attractive financing and considerable backlog, we therefore, find it attractive to continue to buy back our stock. So far, we have bought back 900,000 shares at an average price of $9.2 per share since we announced the buyback program last November. Given recent improved outlook and backlog, the Board has decided to raise the buyback threshold from $14 to $15 per share.So let's review our contract portfolio on Slide 4. Today, we have 3 ships on variable hire contracts. This means the earnings are linked to the general spot market earnings. This is Flex Artemis, which is on our long-term TCP with Gunvor until Q3 2025, with options for another 5 years. Then we have Flex Enterprise and Flex Amber, also on variable higher contracts, where Flex Amber was recently extended by another year with early redelivery now being fourth quarter next year.Moving on to the ships on the fixed hire time charters. Flex Freedom is on a shorter-term TC, which expires in Q1 next year. But where we have fixed the ships on a time charter to a portfolio player with a minimum period of either 3 or 5 years. The firm minimum period, i.e., 3 or 5 years, will be declared shortly.Flex Constellation was booked to a trader in May on a time charter with a minimum period of 3 years. Then we have Flex Endeavour, Flex Vigilant and Flex Ranger, which have been fixed to Cheniere for a minimum period ranging from 3 to 3.8 years. All these ships have now been delivered to Cheniere, and Cheniere will also take 1 on more ship on a 3.5-year time charter in third quarter next year. Cheniere also has the option of adding 1 more ship next year, bringing the total to 5 ships. In this overview, we have, for illustrative purposes, assumed Flex Courageous and Flex Aurora as Cheniere vessel 4 and 5. But we have the option of nominating performing vessels, which provide us with some flexibility in our portfolio.Flex Courageous was fixed on an 11-month short-term time charter in April, and we expect to get them back at the end of Q1 next year. Flex Aurora and Flex Resolute were recently extended by 6 months, and the charter hire for these optional periods are substantially higher than the initial firm period, which commenced in connection with the delivery of these ships last year.Then we have Flex Rainbow, which was fixed on a 12-month time charter commencing in Q1 this year, where the charter has the option to extend this vessel for another year.Finally, we have Flex Volunteer, which are trading in the spot market, which is a market which we think will be very attractive as I will explain a bit later in the presentation.With this full contract portfolio, our charter cover for the year is 96%. But as mentioned, earnings for 4 of our ships are tied to the spot market. Hence, our earnings in the second half of the year will be partly determined by how the spot market develops in this period. As you can also see from the graph, charter covers is also healthy in the next couple of years, thus providing us with more stable earnings than in the past.On Slide 5 is the guidance. Revenue guidance is very similar to our last presentation where the variation is depending on the earnings for the 4 ships linked to the spot market as mentioned. However, we have accommodated the analysts in adding grid lines to the graph as it seems some of them prefer this rather than using a ruler to estimate the range in the revenue guidance. So we do hope these grid lines makes the analyst job a bit easier even if the visual expression is somewhat adversely impacted.As we mentioned in the Q1 presentation in May, we expect revenues of about -- we expected revenues of about $65 million, down from $81.3 million in the first quarter. And the actual number we ended up with was $65.8 million, time charter equivalent income of $64.9 million, after deducting $980,000 in voyage-related expenses.As mentioned in the highlights and as you can see from the graph, second quarter tend to be the softest quarter, and we expect revenues to bounce back in third quarter with the revenues expected to be around similar levels as in Q1, i.e., around $80 million.Q4 revenues have slightly higher variability as it's difficult to accurately predict how high spot rates will go when we are getting into the winter market. In any case, we do expect Q4 to be the strongest quarter, which tends to be the case in LNG shipping except for Q1 this year, where a long and cold winter resulted in us generating slightly higher TCE numbers in Q1 than Q4. In Q4 -- Q1, we also benefited from having more ships on the water, resulting in our jump in revenues, as you can see.Keep in mind, our costs are fixed with an industry low cash breakeven level of around $45,000 per day. With all ships on the water now, $1 increase in revenue is basically $1 increase in our free cash flow and thus, our dividend capacity given our ample liquidity position. As a back-of-envelope calculation, a $1,000 increase in charter rates increased our annual cash flow by close to $5 million.Slide #6, the dividend, speaking of it, and let's discuss our dividend philosophy. As mentioned, our investment program is now completed. We might invest in new ships in the future, but at the moment, we have no plans to do so. During the last 3.5 years, we have been in an investment phase, taking delivery of [ touring ] ultra modern large LNG carriers. This has been a major investment of close to $2.5 billion, and our focus in this period have primarily been to secure financing for ships and attractive contracts for our ships, while building the software with an experienced top management and in-house technical management for all our ships.As we are now moving into the next phase, we have incrementally increased our dividend in line with our cash flow generation. Last November, we became increasingly upbeat about the prospect, given less COVID-19 concerns and a rebound in the LNG demand. We, therefore, decided to reinstate our $0.10 dividend while also announcing a share buyback scheme. Our assessment of the outlook turned out pretty accurate, and we generated serious cash flow in Q4 with $0.45 of adjusted EPS, thus enabling us to hike the dividend to $0.30. In Q1, we generated $0.64 of adjusted EPS, and we hiked the dividend again to $0.40. This is a level we have decided to maintain for Q2.Hence, the dividend coupled with the buyback, represent a payout ratio of 96% in this 12-month period. Keep in mind that we, during these 4 quarters, have taken delivery of 7 newbuildings with associated CapEx in connection with delivery. Despite this, our cash balance has kept on going throughout this period and today stands at $144 million, which is on an all-time high cash balance for us. As we have guided, revenues are expected to grow in the second half of the year. And as our costs are more or less fixed, this will increase our free cash flow considerably and, thus, dividend capacity, as I explained on the previous slide. We do not have a formal dividend policy with, for example, 50% of EPS to be paid as dividend or some sort of minimum level of dividend. Our dividend philosophy is similar to what we have in our affiliated shipping companies Frontline, Golden Ocean and SFL, which have all a very good track record in the capital markets.Let me explain a bit in more detail how we think about this. When we consider the dividend level, there are several factors we consider when we determine the appropriate level. Earnings is, of course, the most self-explanatory factor, and our adjusted earnings are a very good proxy on free cash flow, although there can be a working capital adjustment from quarter-to-quarter. However, that said, in general, our working capital needs are very limited. Our charters -- paid charter hire in advance as we trade on the time charter, and this actually resulted in us having negative working capital, which is different from what a shipping company, which trade ships on what the charters typically have. As mentioned in relation to Q3 last year, market outlook also influenced our dividend level. This relates to how we assess the outlook and our confidence level with this assessment. Having a higher level of backlog makes prediction about the future easier. And as we currently have 96% of the book and a significant backlog for the next couple of years, this also plays a major part when considering our dividend.When assessing the dividend level, we also take into consideration of financial positions, such as liquidity position, which I have already mentioned, is at all-time high and more than twice the requirement under the financial covenant in our bank loans. In general, our financial covenants are easy to comprehend. We are required to maintain book equity level of above 25% of total assets, and this is currently about 34%.Under our bank loans, we need to have a liquidity position of about $25 million and 5% of net debt, while under our leases, cash requirement is no higher than $25 million. Hence, we are passing liquidity and covenant tests with flying colors. Given the fact we have taken delivery of all our newbuildings and we have secured long-term debt for all our ships, debt maturities and CapEx is no concern for us, particularly since we have issued no bonds.Other consideration is a bucket list of item for big events, which can create risk and uncertainty, think Black Monday, 9/11, Lehman Brothers and COVID-19. The Delta variant and other possible mutation of COVID-19 is the main reason for this light-not-being-dark theme in at the moment. So just like Matthew McConaughey, like in his new book, Greenlight, which is, by the way, a surprisingly readable book, we are also chasing green lights. Nearly all our lights have turned green, and we do expect that improved revenues and earnings in the second half of the year, coupled with further rollout of vaccine, will turn all parameters dark green. All vaccine rollouts are out of our hands. So rest assure, we have a well-thought approach to dividends, and we are fully aligned with shareholders. In our view, the free cash flow belongs to our shareholders and will certainly not be used by management in empire building. With that, I think it's a convenient time for you, Knut, to discuss the financials in more details, and I will revert with a short market update afterwards.

[Knut Traaholt]

Thank you, Oystein. And let's turn to Slide 7. In the second quarter last year -- or since second quarter last year, we have more than doubled the fleet with a newbuilding program, which is now completed. As Flex Vigilant was delivered in end of May, she had 30 days available during the second quarter. So we had earnings from 12.3 vessels in Q2. Therefore, Q3 will be the first quarter where we will have the earnings capacity from the full 13-vessel fleet.And turning to Slide 8. As Oystein already has mentioned, our TCE earnings for Q2 was $57,800 per day. This is down from the $75,400 per day in Q2 -- Q1, and the lower TCE is explained by the normal seasonality where Q2 is a low quarter. This impacts our earnings from the vessels trading spots and the vessels on variable higher contracts. As we form Q3 and onwards, we'll phase in more of the long-term contracts agreed in Q2. The seasonality effect that experienced in Q2 will be reduced going forward. The TCE for the first half of the year was solid at $66,340 per day, a substantial increase compared to the same period last year.Our operating expenses were impacted by extra costs related to COVID-19 and in particular, related to crew changes in Asia. If we look at the first 6 months, with an OpEx of $13,600 per day in OpEx, that's about $500 per day, which is related to COVID. Hence, the underlying operating expenses remains within the guided level of $13,000 per day.As mentioned by Oystein, we do continue to face challenging crew changes, in particular in Asia, higher lube oil prices and general supply chain challenges for delivery of spare parts. Hence, we expect that operating expenses continue to be a bit bumpy in the coming quarters. as long as the travel restrictions and current hirings are affecting our operations.Gross revenues for the quarter came in at $65.8 million, in line with our guidance for the quarter of $65 million. Adjusted EBITDA was $47 million, and adjusted net income of $15.7 million and adjusted earnings per share at $0.29 per share. The numbers are adjusted for a $2.8 million loss on interest rate derivatives, which includes an unrealized loss of $1.1 million.Quarter-by-quarter, our numbers are down due to the explained seasonality in the second quarter compared with a very strong first quarter. The first half figures shows the financial impacts of the increase in the fleet size, as shown in the previous slide and the earnings potential in the fleet.On the financing, interest expenses are slightly up, reflecting a full quarter of the interest on the debt drawn for Flex Freedom and the drawdown of the loan related to delivery of Flex Vigilant.Then moving to our balance sheet, which is quite straightforward after the delivery of the last newbuilding. On the asset side, we have cash of $144 million and vessel just shy of $2.4 billion. Development in cash will be explained on the next slide, and the increase in book value is explained by the delivery of Flex Vigilant in May.On the liability side, we have about $1.6 billion of long-term debt from international banks and financial institutions. The increase in debt is related to the aforementioned drawdown of the bank loan related to delivery of Flex Vigilant. And then we have book equity of $152 million, which is about $100 million higher than the market cap, despite us having the ship at much lower prices than the new building prices today.Let's turn to Slide 9. Despite a seasonal low quarter, we ended up with a positive cash flow of $5 million during the quarter. This is driven by approximately $30 million from operations and $17.6 million from working capital adjustments. As we are mainly trading -- mainly operating on a time charter basis only, we received charter in advance, which is advantageous from a working capital perspective.Debt amortizations were $13.2 (sic) [ $13.2 million ], and you will see that Q2 and Q4 have lower amortizations as our ECA financing has semiannual repayment profile. During the quarter, we paid $21.3 million in dividends and spent about $400,000 on buybacks of our share under our share buyback program. In total, we bought back 27,344 shares during second quarter. That leaves us with a solid cash position of $144 million at the end of the quarter.Then we turn to Slide 10. And this is a familiar slide, which we have shown several quarters, but it's still relevant, as we have financed our assets with attractive long-term financing, and we have no maturity before Q2 2024. The debt is diversified mix of bank loans, ECA, revolving credit facilities and leases, which leaves us in a very comfortable funding position.And with that, I hand the word back to Oystein, who will give an update on the market.

[Oystein M. Kalleklev, Chief Executive Officer]

Thanks, Knut, for the financial review. Hopefully, life in shipping feels better than in banking. So Slide #11, Chimerica. Chimerica, a reference to U.S. and China, and I think it was coined by Professor Niall Ferguson. So in our Q1 presentation back in May, we started off with an overview of the LNG market where Asia was pulling cargoes away from Europe. Our shift from European to Asian demand is positive for the freight market as it increases the sailing distances as the incremental cargoes are typically sourced from the Atlantic Basin, very often flexible U.S. cargoes. This trend continued in the second quarter. U.S. was the main driver of export growth, while the 3 largest import nations, China, Japan and South Korea, was the main growth regions on the demand side. Also note that growth from South America, predominantly Brazil and Argentina, have been remarkably strong in 2021, while as mentioned, European imports are down compared to last year. It's fair to say that European imports were high last year due to European buyers, buying a lot of cargoes for storage of the chip following the slump in demand due to COVID-19.All in all, export volumes were up by about 4% in first half of 2021 compared to last year. We do, however, expect oil to accelerate in the second half of 2021. Due to the COVID-19 fallout last year, gas prices hit rock bottom, and we saw about 180 U.S. cargoes being canceled and most of them in the third quarter of 2020. Hence, the export volumes in the first half of 2021 are 8% higher than the volumes in the second half of 2020. Given the high gas prices, which I will cover shortly, there have been no cargo cancellation this summer, and we do not expect any either. We, therefore, expect export volumes to grow by around 10% or more in the second half of the year, bringing the growth for the year to around 25 million tonnes or about 7% annual growth.The steady growth of the LNG market this year have taken many by surprise. Volumes are actually very much in line with our market projection in our Q3 report last November. We then argued that significantly higher gas prices, both spot and future prices would result in high volume growth for 2021 as there would be a few, if any, incentive to repeat the cargo cancellation seen last year. At the same time, we also expected Egypt to return as a large LNG exporter, and Egypt have so far exported 4 million tonnes this year compared to only 1.5 million tonnes in 2020.Now Slide 12, European inventories. The European gas inventories have recently become a permanent part of our slide deck. As we started to highlight in our December 2020 presentation, the strong demand from Asia at end of 2020 into 2021 was pulling cargoes away from the Atlantic Basin and away from European buyers with rapid depletion of gas inventories in Europe as a consequence.As illustrated on the last slide, this Asian demand pool has continued into 2021 and thus starving Europe from natural gas at the time when gas demand in Europe has been strong due to our long and cold winter, while high coal prices and even higher carbon prices have incentivized switching from coal to gas. At the same time, Gazprom has elected to not increase pipeline flows to Ukraine above the minimum agreed volumes. And Norwegian gas growth have also been on the soft side due to maintenance deferrals last year due to the COVID-19 situation. Hence, the European gas inventories remain low, and Europe will probably enter the winter with significantly lower storage levels than the previous 2 winters.In the last couple of months, we have seen fierce global competition for gas. During this period, the European gas prices acted as the global benchmark price, where correlation between gas prices in Europe and Asia have been remarkably high with Asian prices at a slightly higher level, reflecting the higher shipping costs. Lower gas inventories also increased the probability of high volatility in gas prices as another cold winter in Europe can result in rapid depletion of gas inventories. With a 70% chance of another La Nina winter according to the U.S. National Oceanic and Atmospheric Administration or NOAA, we could, therefore, be in for our winter with sharp movement in gas prices.Turning to Slide 13, the spot market for freight. The freight market boomed at the start of the year with all-time high freight rates and LNG prices, with the winter in Asia turning a bit hotter in February and a lot of newbuilding deliveries at the start of the year, the market softened from the elevated levels seen at the start of the year. As you can see from the graph on the right-hand side, vessel availability shot up in February, particularly in the Pacific region, but also to some extent, in the Atlantic due to the big fees in U.S., which resulted in temporary export curtailment for some LNG export [ banter ].However, the seasonal downturn was fairly shallow with the market bouncing back by end of April. We started to see green shoots in March with ballast bonus sentiment bottoming out in week 9, while rates started to pick up in week 11.Since reporting in May, freight rates have moved like a snake between $70,000 to $90,000 per day for modern tonnage. Big charters have generally been long tonnage after a flurry of term business this spring and summer, so most spot fixtures have been re-lets. However, this re-lets, which is tonnage controlled by charters are typically only available for shorter duration as the charters typically want to control these ships during the peak winter season. We are now approaching the time of the year where spot rates tend to move upwards and the market expectation is for much higher rates as we can infer from the 1-year time charter rates, which I will cover on the next slide.Slide #14, the 1-year time charter market. 1-year time charter rate, which is the best proxy for the future earnings in the spot market has been on our pier the last 4 months. For most of 2020, the 1-year TC rate was around $60,000 per day. And this was also the case at the start of 2021 until the market sentiment abruptly turned more positive in April. Since then, the 1-year time charter rate has nearly doubled. The 1-year time charter rate for modern tonnage quoted by Fearnleys is currently $115,000 per day. This illustrates that market participants expect spot rates to move upwards as there is willingness to pay premium to spot rates for 1-year period and even more so for 6-month periods.As LNG have become pricier, the advantage of having large fuel-efficient ships is also becoming more advantageous. The spread between MEGI/X-DF ships with approximately 174,000 cubic meter of cargo capacity and a standard 160,000 cubic tri-fuel ships is now $22,000 per day. Given today's LNG prices and thus, the entailed savings of utilizing more modern tonnage with higher cargo capacity, we actually think the spread should widen even more.The firm 1-year time charter rate is also pushing up longer-term charter rates with both SSY and Affinity, quoting 3-year time charter rates at $90,000 per day, which is maybe not too surprisingly, as the lead time for our LNG carrier today is about 3 years. At the same time, newbuilding prices have been moving steadily upwards closer to $210 million, which is -- which means newbuilding also require higher rates than what was the case 12 months ago. Just as an example, if you were to replicate Flex LNG today with new builds, you will need to spend about $2.7 billion in CapEx, then another $30 million in building supervision, assuming similar debt level at Flex, about $1.5 billion net debt with about $20 million in financing fees.You would also need to spend money building up the organization. So let's assume you would have to raise $1.3 billion of equity to finance this investment. If you have a similar share count to Flex LNG, that would translate into a acquired equity price per share of $24. However, if you did this investment in our new Flex at $24 per share, you would be getting 0 return on the investment before taking delivery of ships probably in 2024 and 2025, and thus be missing out on a lot of dividends if you rather elected to be invested in Flex.So turning to Slide 15, gas prices. Gas prices have been on a bull run since bottoming out last summer. And as mentioned in the introduction, they are, in our view, right now actually a bit too high. The market have, in 1 year time, turned upside down going from too much LNG to little LNG. LNG evidenced that it was more resilient than other sources of energy last year being the only energy source, except for renewables, growing. With the recent dash for gas, which is very complementary to renewables, there haven't been enough of it to go around, and prices have, therefore, responded upwards.Currently, the Asian spot price, JKM is trading at around $17, while its European peer, TTF, is trading at around $15 per million Btu. The spread between European and Asian prices are also positive, which is important for incentivizing cargoes to be pulled to Asia. And the spread is expected to widen during the winter as we do expect congestion to pile up again in Panama, resulting in even longer voyages for Atlantic cargoes heading to Asia.As we have communicated in the past, future prices have a mixed record of predicting future spot prices. But today's future prices, in any case, suggest our very firm market. The winter JKM prices actually surpassed the level we saw at the start of the year when February JKM contracts hit a high -- an average of about $18 with a high of $32.5. Hence, expectations are for continued high gas prices over the winter with a gradual normalization of gas prices by the middle of 2023 when they are converging towards the typical oil-linked price at about 25% discount to oil parity. This also makes sense as we do expect considerable new LNG export volumes to be ramped up by 2024 onwards. What is most important for us is that the LNG price is sufficiently high enough with a positive spread between U.S. and where Asian prices are at a premium to European prices and that's certainly the case today.Slide 16, the order book. As the term market have been very active recently, the number of available ships is declining. And today, about 80% of the ships on order is linked to our long-term charter and where we expect that more uncommitted ships will be tied up on term charter prior to delivery, if not already, as such announcements are very often delayed.Newbuilding orders have picked up recently. But with newbuilding prices above $200 million, there are very few speculative newbuilding orders as illustrated ahead. We have discussed in great length in the past, the implication of new decarbonization rules for all ships or EEXI as it's called, and there is undoubtedly a lot of newbuildings set for delivery which will replace older tonnage, particularly the older inefficient steam generation ships. The EU decided to add shipping to its carbon trading scheme will further put these ships at a disadvantage compared to new modern tonnage as the new generation MEGI/X-DF ships have a carbon footprint per unit of cargo of close to 60% less than the steam generation.However, keep in mind that Europe is only about 20% of the LNG import demand. Asia is the big import region where we also see more or less all the growth going forward. It could be that some of the less-efficient ships are therefore doing short haul intra-Asia unless similar mechanism are up put in place in that region. The European carbon tax will be applicable for ships trading intra-Europe. If the ships are bringing imports from outside the European emission trading area, half the voyage will be applicable for carbon taxation in Europe. The carbon taxation will ramp up from 2023 when 20% of applicable emissions will be taxed. This level increases to 45% in 2024, 70% in 2025. And finally, from 2026 and onwards, 100% of the applicable emissions will be taxed.Slide 17, COVID. Despite recent progress on COVID, this remains a big challenge for the shipping industry. While vaccination rollout has rapidly increased in Europe with Europe surpassing U.S. in vaccination levels, vaccination levels in other parts of the world remain low, and there are questions whether all vaccines have similar efficiency against the Delta variant. Only about 20% of LNG cargoes end up in Europe, as mentioned, while about 3/4 end up in Asia. So vaccination level and restriction in Asia is just of more importance to the LNG industry. Because of the lack of vaccine rollout in Asia, crew rotation remains very difficult to carry out in this region. We are, therefore, still meeting a lot of obstacles carrying out true changes. Nevertheless, we work out to minimize the share of seafarer which our overdue on the contracts. I think our onshore personnel and crew have done a remarkable job in this regard with 98% of our seafarers being on time. So once again, thanks for your hard work.Vaccination levels of seafarers are also mixed. Our big share of our crew are Filipinos, and for them to get access to vaccines are providing more difficult than in the West. We, thus, try to take every advantage of vaccination of crew whenever possible. And we are glad to see that the U.S. allows visiting seafarers to be -- to take the vaccine when calling U.S. ports and terminals. And this is something we have done for several of our ships now.Most recently, Flex Rainbow, where on August 4, we were able to vaccinate 19 of our crew members when we loaded our cargo at the Freeport terminal. By doing so, we increased our crew vaccinated to 23 out of 26 being fully vaccinated with 1 crew member being partly vaccinated.However, in order to organize vaccinations, we need to call ports where such vaccines are available, and we do hope more countries can make vaccines available to seafarers as seafarers are key workers. Without shipping, about 90% of good transportation will dry up, and then everybody will feel the pain.So let's summarize today's presentation. Revenues of $65.8 million, in line with guidance. Coverage for 2021, the next couple of years is great, although we keep exposure to the spot market through 4 ships, as mentioned. Dividend maintained at $0.40 but upside here in the second half of the year when we expect revenues to bounce back after the usual seasonal low point in Q2. All our ships are on the water, and all of our ships are now on hire. We are positive to outlook, both short term and long term. And finally, our balance sheet is in great shape with a big cash pile enabling us to do this with our free cash flow.So that's it. I'm happy to take some questions. So let's open up, operator.

[Operator]

[Operator Instructions] We will now take our first question, and it comes from the line of Randy Giveans from Jefferies.

[Randy Giveans]

A long-time listener, first-time caller. I guess 2 questions. One, on the share repurchase minimum level or maximum level. The last couple of quarters, you increased it by $2 a share. This quarter, by $1. Kind of what was the thinking of that to $15? And where do you see your current NAV?

[Oystein M. Kalleklev, Chief Executive Officer]

Yes, it's a good question. I think actually, I've already more or less answered your question about the NAV with my kind of back-of-the-envelope calculation of what it would cost to make a new Flex LNG. And as mentioned, it would be probably a $2.7 billion of ships, then add all the costs and you had to issue stock at $24 and missing out on the dividend. So I do think that the NAV is well above our book value of our stocks, which is around $16. So our NAV is -- if you are putting in $210 million on ships, it should be more than $20. But you analysts, I guess you can come up with a lot of different estimates on this. But as far as I can see from some of the analysts sending out the post today seems to be in that range.In terms of the buybacks, why the certain level, I think once we have financing in place for all the ships in November, and we started to feel we're comfortable about the outlook, we initiated a buyback program because I have been saying for some time that the stock has been on Black Friday prices for some time. And so we implemented that. And at that time, I do think that the stock price was trading at around 7 -- maybe around $8 -- $7, $8. So we put the threshold at $10. Things started to look better and the share price appreciated so we moved it to $12 and then $14. And at least now, we are getting into more sensible valuation with the stock recently trading at around $14. We increased it to $15 in order to be able to have the opportunity buy the stock in the market. However, that said, of course, we do have our main principal shareholder, John Fredriksen's family, which has a stake today of around 47%. So there are some limitation to how aggressive we can be on the buybacks. But we felt it's sensible to increase the threshold to $15, so we can be in the market on days like this when the stock is not performing very, very well and buying back the stock. But in general, of course, we do prefer paying dividends. So -- but we're trying to do both. And by increasing the threshold, we can do a bit of both. As I mentioned, we do also think there is room to increase the dividend in the second half of the year.

[Randy Giveans]

Great. I know, very thorough answer there. And I guess, second and the last question, just around the Qatari tenders and maybe growth opportunities there. Is that something Flex is participating in? And what are your thoughts on those projects?

[Oystein M. Kalleklev, Chief Executive Officer]

Oh, of course, it's a fantastic project for the Qataris. As far as I understand, there, you will have a very competitive production price on -- it's a very efficient field. You will have the industry lowest, call it, the FOB price, so kind of the price in the export terminal. They will do this 33 million tonnes first. They probably need 45 ships for that. They have still 25 steamships, which they probably want to replace to that 70 ships, and then they probably need 25, maybe even 30 ships for Golden Pass and there you are 100 ships. And then, of course, they are planning to add 60 more million tonnes. So that's another 25, 30 ships. So we are participating in that, and we are looking into it. Of course, I think with our current stock price, which is well above -- now well below kind of replacement CapEx, we are not there, but we will pursue growth unless it's attractive for us to do so. And with the stock price we have today and the implied valuation per ship, we focus on the dividend and buybacks. And so we will only pursue it if it's accretive to our shareholders.

[Operator]

We'll now take our next question, and it comes from the line of Greg Lewis from BTIG.

[Gregory Robert Lewis]

Thanks for the presentation, always super helpful. I was hoping for a little more color around Slide 14 where, I mean, clearly, there's been a nice uptick in charter rates driven by the counter seasonal spot market. But realizing you fixed the 5-year. I guess a couple of questions here. One is for that multiyear contract yet, how competitive was that process? i.e., was it Flex competing against another competitor? Was there -- I'm kind of curious, any color around the competition for that?And then just as we think about the 1-year time charter market, clearly, rates are higher. The way to parse it out, the breadth or depth of that market, i.e. in, say, the last couple of months or quarter versus what was happening in that market a couple -- last -- the quarter before, previously?

[Oystein M. Kalleklev, Chief Executive Officer]

Yes. Okay. I will try to start giving you some answers. First, as you alluded to, we have done some -- we've had a significant backlog the last couple of months. In April, we did 4, possibly 5 ships with Cheniere. In relation to that process, of course, all this process are competitive. The charters always try to get the best terms and so do we as owners. But of course, there's not really that many owners you can go to, to have 5 new modern ships available in the market. So of course, it's not like it's a big tender with a lot of people because there's no -- really nobody else who could give them, maybe with 1 or 2 exceptions, who give them that many ships in one go. And I don't think anybody could have done it with those kind of delivery slots that we had. So, of course, we have a dialogue with them, and we -- I think we find a deal that works well for us. We could add significant backlog. When we started the year, we had 9 out of 13 ships linked to the spot market. So it was a good way for us to derisk our portfolio, and we got a reasonable return on our equity.And then, of course, since then, by us doing that, it also kind of improved the sentiment in the term market because suddenly, there was less ship available and also gas prices really rallied from a low of $5.5 starting in March to $17 today. So that also increased willingness to pay for freight. And we added 1 more time -- now 2 more time charters in May, 1 for pump delivery, Flex Constellation, where I think we got a very good rate. And then since we don't have that many ships left for open in 2021, we were able to fix forward a ship for delivery Q1 next year. So that is also a good position for us. It's usually a bit of the softer period of the year, and we are fixing forward ship for 3 to 5 years also on what I think is a good attractive return for us.So of course, there's been competition, but I think we said all along the way that one of the reason for us building in our ship management was in order to be in a position to act on these kind of opportunities when they have arised. And we thought so that, that might be the case in '19 and '20. For instance, I dwelled in the past, that wasn't possible to achieve those kind of contracts in that market. But in 2021, the market has been firm, a lot of term interest, and then we have just acted on those opportunities, derisking our charter position and just having a bit more stable income and thus enabling us to pay attractive dividends.When it comes to the 1-year time charter rate, it's been fairly liquid, I would say, recently as there's been considerable term interest. And as there has been fewer and fewer ships available and LNG rates have been picking up more on a monthly basis, the implied price for our 1-year time charter rate has just picked up and picked up. And we are now at very good levels, which implies that also the winter season will be good with quotations now 6 months -- 6 to 7 months of $130,000. I personally think that the rates will be moving higher than that, but let's see. But again, I think for us, it's been about finding good charters, which gives us a good return, derisk business and enabling us to really pay juicy dividends.

[Operator]

And our next question comes from the line of J. Mintzmyer from Value Investor's Edge.

[J. Mintzmyer, Founder & Head of Research]

Congrats on an excellent quarter.

[Oystein M. Kalleklev, Chief Executive Officer]

Good to hear from you, J. So what do you think?

[J. Mintzmyer, Founder & Head of Research]

Yes, absolutely. Well, I'm very happy. You reported results exactly within your guidance, but apparently, the market cannot read your Q1 slides. So that's kind of entertaining. But anyways, you have an all-time record high in cash balances. You have no CapEx required. You don't really want to bid on the Qatari vessels or at least that's what I read between the lines. So how much cash do you think you need? Because right now, I think it was $144 million. How much do you think is a responsible amount of cash versus how much is available for repurchases or whatnot?

[Oystein M. Kalleklev, Chief Executive Officer]

Yes, I think we have, of course, plenty of cash today and [ 100 ], this is a new all-time high. You have asked me in the past, and as I mentioned during the presentation, some of our bank loans, they have a cash covenant, which would imply a minimum cash of $70 million. This doesn't apply for all leases. But for the ship finance and the bank loans, this is the case. So $70 million then. And usually, you would like to have some buffer on this. But given how we have derisked our business, of course, this buffer or cushion needs to be less than probably in the past. So I think when we have discussed this before and I have alluded to having $100 million of cash is a very satisfactory position for us. As of now, we have 44% higher than that. So we are sitting with a lot of cash and that's why we are eager to start distributing more to our shareholders through dividends and buybacks. So we certainly have more cash than we need.

[J. Mintzmyer, Founder & Head of Research]

Yes. It certainly seems that way. You got about $40 million of extra cash, as you kind of alluded to there. Look, you increased your repurchase authorization to $15 a share. Right now in the U.S. markets, I know you had to convert to Oslo and whatnot, but it trades about $14.20. So I was just curious you have 3 million more shares authorized to repurchase. Is there any appetite for something like, say, a $15 tender offer? You could do 3 million shares at $15 for $45 million, and that would take care of your cash balance, and it would also add extreme value to shareholders. Any thoughts on that?

[Oystein M. Kalleklev, Chief Executive Officer]

It's something we consider in the past. And when we opted for this program back in November, we -- there's a couple of ways you can do it. And I think when we started it in November, we saw that the volatility in the stock price were keeping a lot of investors awake at night. And by us coming into the market, then my regulation under such a buyback program, where we can buy up to 25% of applicable volume, so you [ can't ] buy 25% of the daily volume. This is calculated over the last month or so. So you can really come in and stabilize the share price to some extent.And then you also get more information during the road. I think in November, a lot of analysts were concerned about the 54 ships for delivery in 2021. I think we were a bit more -- a bit because we were very bullish on volumes. And with 25 million tonnes expected increase in 2021. So I felt we started a bit. We didn't want to scare off people that we were spending too much money on this, and we have incrementally used this and incrementally increased the threshold in order to -- as we have seen, things have been turning brighter and brighter along the ride, and we bought back so far 900,000 stocks. But there are certain limitations, as I mentioned also to Greg. We have a shareholder, which has a very big position in the company, 47% by [indiscernible] John Fredriksen's family. So there are some implications if he goes above 50%, which we would like to avoid. But so far, we have just decided to buy back in the market and rather pushing the dividends up. But if we do see that there are disconnect, I wouldn't rule out we're doing something more than just buying in the market. But let's see. The stock price in America last night closed at $15.84. So it seems to be very volatile these days.

[J. Mintzmyer, Founder & Head of Research]

Yes, certainly, a good explanation, Oystein. And I think some new investors maybe just didn't read the previous guidance, but I'm sure they'll be happy with Q3, and they're going to be really happy with Q4. Always good talking to you.

[Oystein M. Kalleklev, Chief Executive Officer]

Yes. Good to talk to you as well.

[Operator]

We will now take our next question, and it comes from the line of Joe [indiscernible], a shareholder.

[Unknown Shareholder]

Great.. I'm a private investor, I've been with you since the U.S. IPO. Thanks again for meeting your goals and being very transparent. A lot of us here, we're really confident in you all. And thank you so much for having grid lines on Slide 5. So now we're...

[Oystein M. Kalleklev, Chief Executive Officer]

Okay. And we will keep that in mind for future.

[Unknown Shareholder]

So my question is around your forecast. Last quarter, you gave a 3-month forecast. This quarter, you've only given 2. So my question is when you look at Slide 4, your backlog, when you look at Q4 and 1Q, you're about the same. So what's different in 1Q other than a quarter further that you're not giving that forecast for Q1?

[Oystein M. Kalleklev, Chief Executive Officer]

No, it's a good question. I -- usually, historically, we have only provided guidance for the next quarter. So when we did all these contracts in April and May, we had a significant link to our backlog. So we've helped -- in order for people to understand the economic rationale of this and financial implications, we decided to do something we have not done in the past, which is actually to guide for the rest of the year. So we didn't guide just Q2 but also Q3 and Q4. So when we are presenting today, we basically have said that we repeat that guidance. So we repeat the guidance we had. Last time, we have narrowed the variability a bit on the revenues, but more or less, they are the same. So we haven't really kind of started a new kind of principle of guiding the next 3 quarters. But it's a good point. And once we are reporting again in November, of course, we can consider trying to give some more guidance on 2022. But keep in mind that we do have ships on variable hire contracts. And these spot rates, which are feeding into these indexes tend to fluctuate quite a lot. So once you're getting further down the road, the variability in the revenues will, of course, increase. And we have some ships coming off charter in -- during Q1 next year. So how will the market be in Q1 next year? It really depends on how the winter will be. Will we have a repeat of the last winter? Will we have a -- it seems like the probability of a warm winter is fairly low given the 70% of La Nina. But that's really the -- once you're getting very far into the future on these kind of things, the variability in the revenue guidance become much bigger and then kind of the value of providing it might become a bit less. But we can have a look at it and maybe we can provide some numbers on at least the number of days booked for 2022. But as you can see from the fleet overview, the coverage for 2022, '23 and even into '24 is pretty high.

[Unknown Shareholder]

So I'm not suggesting that you do 3 quarters or more every time. I was just curious to see what was different, and I think you've answered that. So thank you.

[Operator]

[Operator Instructions]

[Oystein M. Kalleklev, Chief Executive Officer]

Okay. We got one question by chat. It was about our dry dock schedule. So some people were asking, when do we have the dry dock on these ships. So in general, the rule is that you dry dock the ship every 5th year. So in 2018, we had a delivery of 4 ships, so they will be due for dry docking then in 2023. We have 2 ships in 2019, which is due for docking in '24, 4 ships in '20 due for docking in '25, and then 3 ships in '21, which is due for docking in 2026. So typically, our dry docking takes some between 15 to 20 days in the dock, costs somewhere around $2.5 million to $3 million, depending a bit on how well you are maintaining your ships during the operations. So that's -- I hope that answered that question. Or did you have one more?Okay. Okay. Okay. With that, I think we conclude today's presentation. I wish you a good day, and thank you for listening in. And we will be back then with Q3 numbers. As we have guided, we expect higher revenues in Q3 and probably presenting those in the middle of November. So I hope you will join that. Thank you.

[Operator]

Okay. That does conclude our conference for today. Thank you for participating. You may all disconnect.