FLEX LNG Ltd

OSE:FLNG

Earnings Call Transcript 2019-Q1

[Operator]

Good afternoon, ladies and gentlemen, and thank you for standing by, and welcome to today's Flex LNG Q1 2019 Earnings Presentation. [Operator Instructions] I must advise you that this conference is being recorded today Friday, the 31st of May 2019. I would now like to hand the conference over to your speaker today, Øystein Kalleklev, CEO. Please go ahead, sir.

[Øystein M. Kalleklev, Chief Executive Officer]

Thank you, Annette, and thank you to everybody participating, and welcome to the first quarter earnings presentation of Flex LNG. My name is Øystein Kalleklev. I am the CEO of Flex LNG management, and I will host you through today's presentation together with our CFO, Harald Gurvin, who will run through the numbers a bit later in the presentation. A replay of the webcast will also be available at our website.Flex LNG is a Oslo-listed shipping company focused on the growing market for seaborne transportation of liquefied natural gas or LNG for short.First, I will start with a disclaimer with regards to, among others, forward-looking statement and completeness of details. The full disclosure is available in the presentation, and we recommend that the presentation is read together with the interim financial report as well as our annual report and our latest prospectus, all available on our website.So let's jump to the highlights. The first quarter results were impacted by a shot up in transportation demand, which adversely impacted trade rates, utilization and ballast sentiment. Hence, for the first quarter, we delivered revenues of $19.1 million. This is in line with revenues of $19 million in third quarter of 2018 as guided, but considerably less than the $36.1 million we delivered in fourth quarter.As we actively elected to keep our vessels in cold condition and utilizing the yield for positioning, our results are negatively impacted by such positioning costs, and the net loss of $3.4 million for the quarter is disappointing. That said, by electing to actively position our vessels and keeping them cold, we are better positioned into the second quarter with all days already covered.Additionally, outlook for second half of 2019 is promising, with some term deals recently carried out for second half at substantial premium to the current spot market. As previously communicated, we have also recently entered into a sale-charterback transaction with Hyundai Glovis, where we agreed to sell and charterback our 2 first ships, flex Endeavour and Flex Enterprise, for a period of 10 years. Once executed, we expect -- which we expect will take place in third quarter, the net purchase price of $300 million will be utilized for repayment of expected bank debt of around $194 million. Hence, the transaction not only secures attractive long-term financing, but also boosts our cash position considerably, giving us even greater degree of financial flexibility.When it comes to the market, it's gone from very tight in Q4 to soft in Q1 as the winter turned out much warmer than anticipated in the key LNG import nations due to El Niño effect in the Pacific. This warm winter resulted in LNG demand being on the soft side. And this, combined with ample LNG supply, have resulted in more cargoes instead being routed into Europe, and thus creating less shipping demand than export to Far East.As the market has rebalanced, incorporating change in trading pattern, we have seen utilization bottoming in the middle of February. Higher utilization also means less vessel availability, forcing rates to trend upwards from early parts of April, similar to the seasonal pattern seen the last 5 years. With improved market conditions, we expect to deliver slightly higher TCE in the second quarter due to less positioning costs.Lastly, we think the outlook for second half of the year looks very good.So as previously communicated, we have been in process for a U.S. listing for some time. We started this process early 2018 with a change of accounting principle from IFRS to U.S. GAAP, making our financial numbers more comparable to U.S.-listed peers. The change was made effective January 1, 2018, with no changes to our balance sheet as we have a clean balance sheet with no vessel at the water at that moment.During 2018, we put in place several new procedures, routines, tools and uplift people in order to ensure that we are able to operate under a more stringent strategy when it comes to financial reporting.When we successfully raised $300 million in October last year, we secured the funding for the 5 LNG newbuildings we acquired from affiliates of Geveran. Given the fact we have a comfortable solidity and liquidity situation, we elected to pursue a direct listing, which is a much lighter process than a regular IPO as it doesn't entail a public share offering in the U.S. with associated underwriters.As we made significant progress on registration statement process during the winter, we decided to reverse split our stock on March 4 in order to comply with the minimum stock price of $4 in the U.S. The reverse splitting 10:1 also makes it easier for our shareholders to keep track of the top performers as no advance note is needed to compare price pre and post the share split.On 4th April, we executed a confidential filing with SEC. And after receiving comments to our filing, we filed a public amended registration statement on May 7. On May 28, we did minor adjustment to this registration statement, and it was deemed effective by SEC yesterday, 30th of May.When it comes to stock exchange, we have decided to pursue a direct listing at New York Stock Exchange. There have been very few direct listing as this is a fairly new way of taking a company public, but New York Stock Exchange has experienced with the successful direct listing of Spotify last year and the Slack direct listing also scheduled for June.New York Stock Exchange provides the benefit of appointing a designated market maker which will provide flow on liquidity in the stock following listing. As Spotify and Slack, we have also decided to appoint Citadel to assist in providing liquidity in our stock as they have relevant experience and also the largest capital base of around $1.5 billion.Yes. Then before turning over to Harald for the financial numbers, I will talk a bit about our customer experience. We started out last year with 4 vessels delivered and managed by Bernhard Schulte Shipmanagement. Bernhard Schulte is one of the largest and most experienced ship managers in the world. They have a track record of more than 135 years in the industry. They manage around 600 ships today and employ about 20,000 people. They also have considerable experience in LNG.During their time as ship managers of Flex LNG, we have had no single incident causing a loss time, injury or total recordable case frequency. These are the most critical KPIs for health and safety.Nevertheless, we have decided to bring ship management in-house for the following 3 reasons. First of all, LNG is a complex trade with basically a live cargo which needs to be managed correctly at all times. The transportation of LNG from liquefaction plant to regasification terminal is consider mission-critical for customers and the costs takes up a much greater portion of the value chain than, for example, in crude oil trade.Secondly, this is for us business driven. Our customers are demanding and require a first-class service 24/7 to ensure safe and reliable transportation. Given how critical our services, they are right to be picky. By committing resources and greater involvement in our value chain, we will be in better position to control and influence decision-making, responding better to customers' requirements. As Flex LNG has the most modern fleet of large and advanced LNG carriers, we think our commitment and involvement will put us in a better position to also secure long-term commitments by charters through long-term employment contract when the time is right.Lastly, we have a long-term perspective on our assets and our assets have a very long technical and economic life. Greater involvement will also ensure better control that our vessels are operated and maintained to the highest standard, ensuring competitive total cost of ownership during the lifespan of the vessels. We are currently in process of integration and conducted our workshop together with Bernhard Schulte this week with involvement of both seafarers and onshore personnel with the aim of finalizing the process by fourth quarter of 2019, where we also signed the formal agreement for the integration.Now over to you, Harald.

[Harald Gurvin, Chief Financial Officer]

Thank you, Øystein. As mentioned, revenues for the quarter came in at $19.1 million, in line with the third quarter revenues of $19 million as guided, but well below fourth quarter revenues of $36 million.Vessel operating costs increased by $2.3 million compared to the previous quarter, mainly due to higher voyage expenses due to bunkers that we consume for idling and positioning, while administrative expenses in both the first and fourth quarter were impacted by costs associated with the U.S. listing process.Net loss for the quarter at $3.4 million, which was down from a net profit of $15.2 million in the previous quarter.Then moving on to our balance sheet as per March 31. At quarter end, our assets consisted of 4 vessels on the water with an aggregate book value of $806 million. In addition, we have made investments of $421 million relating to the 9 vessels under construction, which represents the advanced payment on these.We had a strong cash position of $46 million at quarter end, which excludes the $270 million freely available under revolving facility provided by Sterna. Total debt at quarter end was $449 million, of which approximately $23 million is due over the next 12 months and thus classified as current liabilities. Total equity as per March 31 was $824 million, giving a very strong equity ratio of 64%.Looking at our cash flow. The operational cash flow was negative by $3.6 million for the first quarter, in line with the net loss for the quarter. This was affected by a change in working capital of $6.2 million, which was mainly due to less prepayments of charter hire received. As the last day of the quarter fell on a Sunday, we have a hire for several of the vessels was received on the following Monday.At the end of the quarter, we had a cash on hand of about $46 million. In addition, we had the full amount of $270 million available under our revolving facility provided by Sterna.Post quarter end, we also entered into the $300 million transaction with Hyundai Glovis, with net cash proceeds of approximately $100 million upon closing and $250 million term loan facility for the 2 newbuildings delivering this year.As announced the previous quarter, we have secured the $350 million facility for the financing of the 2 vessels delivering in 2019. The 5-year facility will have a 20-year repayment profile and a margin of 2.35% per annum, demonstrating our ability to secure financing at very attractive terms. The average breakeven rate for the facility is also attractive at about $45,000 per day for each of the vessels based on current interest rate levels.There is no requirement to fixed employment, giving us flexibility to opportunistically employ the vessels as we see fit and [ loan to ] financial covenants are directly linked to earnings. The payment due upon delivery of each vessel is $144 million and the remaining balance will be covered from our available liquidity. The facility is expected to be drawn upon the delivery of the respective vessels scheduled for early June and end of August.In April, we entered into a 10-year sale of the time charter transaction with Hyundai Glovis for the 2 vessels, Flex Endeavour and Flex Enterprise, which were both delivered to us in January 2018. Under the transactions, the vessel will be sold for a gross amount of $210 million per vessel, with a net consideration of $150 million per vessel net of a $60 million seller credit per vessel.Upon closing, the existing mortgage debt of approximately $194 million in total will be repaid and the transaction will thus free up approximately $100 million in cash. The vessels will be chartered back from Hyundai Glovis for a period of 10 years with a fixed monthly payment structure giving annuity style cash flow profile.We have several repurchase options during the term of the charter. And at the expiry of the charter, there is a put/call structure at $75 million per vessel, giving a repayment profile of 20 years and age-adjusted profile of 21.5 years. Closing of the transaction is expected in the third quarter 2019.Upon closing of the Glovis transaction, we will have a very comfortable debt maturity profile, with the first balloon payments June -- due in June 2023 for the Flex Ranger and August 2024 based on the current delivery schedule for Constellation and Courageous. Following these maturities, the next balloon payments don't fall due until 2028 and 2029.When it comes to our funding and capitalization, we are in a comfortable situation as we raised $300 million of fresh equity in October last year, and have now also secured financing for the 2 newbuildings delivering in 2019 and have entered into the Glovis transaction, which will free up around $100 million of cash upon closing.At quarter end, we had $46 million in cash. Adjusting for the Glovis transaction and the cash outlay for the 2 newbuildings delivering in 2019, the pro forma cash balance excluding free cash flow is around $110 million. This excludes the $270 million freely available under the Sterna RCF.Excluding the 2 newbuildings delivering in 2019, we have investment commitments for the remaining 7 newbuildings of about $1.3 billion or an average $184 million per vessel, which includes the full relocates on 3 of the vessels as well as newbuildings supervision.We have prepaid a total of $349 million of the remaining CapEx, representing 20% on 2 of the vessels and 30% on the 5 vessels acquired in the fourth quarter of 2018. This leaves us with $937 million of remaining CapEx for the 7 newbuildings, equivalent to $134 million per vessel.Adjusted for the pro forma liquidity, again, excluding the $270 million available under Sterna RCF, the number is $118 million for newbuilding, which is well below the recent financings concluded.Given the outlook for LNG shipping, we do think we are very well capitalized with more than $800 million of equity on our balance sheet. Based on our existing financings, our average cash breakeven is around $50,000 per day. This means we have the potential to generate substantial free cash flow for our vessels going forward. A time charter equivalent rate of 100,000 per day means each vessel can generate $18 million of free cash flow per annum. This is free cash flow after OpEx, finance expense, installments and general and admin expense, i.e. money in the bank.Right now, we have 4 vessels on the water, with an additional 2 vessels delivering in June and August. Middle of next year, we will have 11 vessels. And finally, in the second quarter 2021, we will take delivery of the last newbuilding and the tally has increased to 13 vessels in operation. This means we are uniquely positioned to generate substantial free cash flow over the next years.And with that, I hand the word back to Øystein who will give an update on the market.

[Øystein M. Kalleklev, Chief Executive Officer]

Okay. Thanks, Harald. I will then give a brief update on the freight market. Following the boom in the fourth quarter, the market went through a disruption in the first quarter this year with rates and utilization level plummeting. The chart to the left illustrates the spot price development for the 3 different types of LNG carriers: older steam vessels; 160,000 cubic diesel electric vessels; and lastly, the modern 2-stroke vessels, which our fleet consists entirely of. The key drivers for softer freight market in the first quarter were unseasonably mild winter, a glut of LNG entering the market pushing down the product prices and thus arbitrage economics. We also had the termination of considerable floating storage and a shift in trading pattern favoring shorter hauls to Europe instead of Asia. These 4 factors resulted in higher vessel availability and also a need for repositioning of vessels from Pacific into the Atlantic basin.Headline rates masked the importance of ballast bonus and utilization. During first quarter, ballast bonus terms were considerably less favorable than in Q4 with typical compensation of only fuel and 50% of hire on the ballast leg. Some one-way economics terms have also been reported.Today, ballast bonus conditions are generally more advantageous than in first quarter with fuel hire and fuel compensation for fuel on the ballast leg. This means achieved TCEs tend to be more in line with headline rates. Firmer ballast conditions reflect tighter shipping availability, which has also resulted in increased charter rates during the last 2 months. We have also seen term contracts with start-up in second half of 2019 at considerable premium to the spot market, which has changed sentiment and dynamics of the spot market in favor of owners.In March, we also announced a more innovative TCP with a super major for Flex Enterprise. Given the low freight rates in March, both for term and spot, we decided to structure the TCE rate as a function of the overall market condition, meaning the spot rates. This contract provide us with fuel utilization while maintaining exposure to the trade rates, which we have a positive view of.Yes. As I mentioned, the winter season have been much milder than last, both in Europe and Asia, which has affected gas demand adversely. In the left-hand graph, you will see the number of heating days in key cities in the 3 biggest import markets. Heating days in Tokyo was down 15% compared to last season, and Japan is the biggest import market. China, which became the second largest import country in 2017, saw drop in heating days of 5% to 8% in Beijing and Shanghai, respectively. South Korea, which is the third largest import nation, saw a drop in heating days, in line with China.Due to less heating days and nuclear start-ups in China, now in Japan, we saw less import demand from these markets in Q1. South Korea also has been on the soft side. The new coal taxes and fine dust regulation implemented from April will be favoring natural gas. The coal tax will result in 50% increase in coal prices to power plants according to Bloomberg. China is, however, continuing to grow rapidly, which I will elaborate a bit further on shortly.Okay. Let's move on to the LNG markets, which is the product we are transporting. Product prices for LNG have been very low after Asian prices peaking at about $12 last September. And this was actually ahead of the heating season which start in October. The high LNG prices last year [indiscernible] of in-floating storage due to arbitrage between gas prices in Europe and Asia. During the recent months, LNG prices in Europe and Asia have been trading at similar levels, around $4 to $5, which is very cheap gas. Negative netbacks between those market have made it more attractive to ship cargoes into Europe, particularly from Russia and the U.S. As the sailing distances from U.S. Gulf to Europe is about half of the distance to the largest import markets in Asia, shipping costs are less, and this have dragged down ton/mileage.While low LNG prices can be negatively short term due to charters' willingness to pay for transportation, low LNG prices per demand and switch from coal to natural gas. And once you make the switch from dirty coal to clean natural gas, you are not as likely to go back, creating permanent demand. However, product prices are not expected to stay at this $4 to $5 level.Forward prices for LNG and gas are at significant premium to spot, thereby creating a big contango as illustrated on this cost. Contango is the best dance in town for ship owners and all ships are the dancing queens given the favorable boil-off rates, cargo size and efficient 2-stroke machinery.When forward prices are higher, it creates storage demand. And sometimes, this storage is done during transit to other markets. Right now, you can buy gas at CTS in Netherlands for about $4 and sell it at the end of the year in Asia for about the double price. This gives trader $4 to play with, and we do see increased focus on floating storage. Floating storage is much more challenging for LNG than for crude tankers due to the fact that the cargo is light and need to be handled with associated boil-off.While old steam vessels typically have a boil-off of 0.15% to 0.25% per day, high fuels at around 0.12% to 0.15%, our ships have a boil-off varying from 0.035% to 0.085%. Low boil-off, coupled with large cargo room and efficient 2-stroke propulsion system, make our vessels ideal for floating storage. Thus, going forward, we think there is a high probability of contango for 2-stroke, and we will get up and dance when the music stops.We have already seen indication of floating storage in the export/import data. Preliminary export/import data from KPLER for the month of May indicates about 2 million tonne of missing LNG when adjusted for the mentioned boil-off. We will know more when data is available for June, but we are certainly experience more breadth in the market regarding the contango trade.So let's touch a bit more on China. During the first 5 months, China imported 24 million tonnes of LNG compared to 19 million tonnes imported during the same period last year. This represents a growth of 25% despite fewer heating days also in China, as described earlier. Spot LNG prices also incentivize LNG import rather than pipeline import given the fact that most pipeline gas is linked to oil prices, as illustrated in this graph. Furthermore, the hot spots for natural gas consumption are relative affluent coastal areas in China like Shanghai where household penetration of city gas is much more widespread. These are also areas which are far away from the pipeline sources with associated transmission costs throughout the middle kingdom. Spot LNG is currently priced at around 7% of Brent price, which is about half of historical price and 40% of energy equivalent price as 1 barrel of oil is about 5.8 million BTU.China also like to build land-based infrastructure and are currently ramping up 4 import terminals and finalizing on additional 2 terminals, thus supporting capacity for increased volumes. The new terminals are also smarter than simply being regasification stations as they have the ability to also service the growing demand for LNG trucking in China. Furthermore, we wouldn't rule out additional FSRU projects acting as temporary import terminals given the availability of such assets these days.Next slide give an overview of the supply side of LNG, which is basically the demand side for the shipping side. 2019 will be an exciting year for LNG. Sanctioning of new projects have been picking up recently with big projects like LNG Canada given the green flag last year and Golden Pass this year. However, we are just getting started. This slide from Bloomberg illustrates the most realistic projects competing for green light in the near term.As you can see, there are plenty of projects, particularly in the U.S. where gas is abundant and cheap due to the increased output of shale oil, which creates associated gas which is very suitable for LNG projects. That said, there are brownfield and greenfield projects on the table, several places with biggest project being the 33 million tonne Qatar expansion being the biggest project with expected FID in early 2020. The projects marked with dark blue color are considered likely to get the green light during 2019 and 2020, while the light blue projects are considered potential projects for 2019 to 2023.As you can see, there is no lack of potential projects. And it's also interesting to see a development where more of the projects today are initiated without locking up offtake agreements for the LNG on long-term contracts. Rather, projects like Canada LNG and Rovuma LNG are initiated without such offtake agreements, but rather where large international energy and utility companies utilize the balance sheet to commit both financing and offtake similar to how upstream oil projects are typically executed.So we will consider the projects which are likely to receive the green light during 2019. The base case installed capacity today is 392 million tonnes. Another 56 million tonnes are under construction. These being mostly U.S. projects like Freeport, Cameron, Elba, Corpus Christi and Sabine Pass Train 5. Another 33 million tonnes have taken FID, but have not started construction.During 2019, Bloomberg think we will add another 82 million tonnes on top of the 15.6 million Golden Pass project already FID-ed. The project in U.S. expected to get the green light in 2019 are brownfield expansion of Sabine Pass with the Train 6, Calcasieu Pass greenfield project of 10.8 million tonnes and Phase 1 of Tellurian's Driftwood project, which is 16.5 million tonnes. The whole Driftwood project is in total about 27.5 million tonnes with Phase 2.In Canada, Woodfiber is expected to be sanctioned, while both Mozambique projects are expected to get the green light. This is the Exxon-led Rovuma project as well as Mozambique LNG, where Total will now take charge of acquiring the LNG assets from Anadarko following their takeover by Occidental. Arctic LNG-2 close to Yamal LNG in Russia is -- has in this table expected to be sanctioned in 2019, but this could potentially slip into 2020.Given the trade conflict between U.S. and China, it's positive to see U.S. trains moving forward. However, without this conflict, there would be probably been more projects in the U.S. getting the green light.A link in the LNG value chain is the transportation. The order book for large LNG vessels is currently 106 according to our data. And of these, 6 vessels are icebreaking vessels constructed for the Yamal project.Flex LNG has 2 vessels for delivery in June and August 2019, 5 newbuilds for delivery in 2020 and 2 for delivery 2021. As reported recently, in headwinds, there are very few uncommitted vessels, and with the Flex Constellation and Flex Courageous only being the remaining uncommitted vessels to deliver this year.In 2020, we think -- which we think will be very tight, there are only 12 uncommitted vessels, of which we have 5, i.e. we control 41% of this capacity.Although we have elected not to take long-term contracts so far, our strategy is not to be focused only on short-term contracts. Our strategy is to focus on the right contracts. We think the market will tighten. This means rates will go up. If you own something today that you think will have a higher price tomorrow, you will not sell it today. Hence, we are focused on spot markets so far. But once market gets tighter, we are open to fix our vessels longer term. Given the high-speed, large cargo size and efficiency of our vessels, they actually fit better on long-term contracts with high level of utilization and long sailing distances, for example, from U.S. to Asia. This strategy will make our earnings volatile in the short run. But with our strong balance sheet and sponsor support, we can handle this. Where the stock price is volatile, it depends whether investors are willing to take a long-term view or a short-term view. Management and our shareholder Geveran is willing to take a long-term view and not to be too concerned about volatility, but rather focus on the trend, and the trend is definitely our friend.Next slide is ordering activity of LNG carriers in a more historical perspective. As the industry has woken up to the fact that shipping markets will become increasingly tight, there has been a flurry of ordering activity in the second half of 2018 and into 2019. We in Flex LNG have been ahead of this curve and sit generally with better slots than other owners with uncommitted vessels.Ordering activity do however vary depending on new projects coming to the market, availability of capital, market sentiment and level of attrition, which is generally very low in LNG shipping as ships have a very long technical and economic life as the cargo is light and noncorrosive. Despite the flurry of orders recently, ordering activity is however low compared to the period 2010 to 2014.Recently, we very often been asked how will the LNG shipping market be affected by the mega orders by the Qataris. So let's consider this question in some more detail. In 2018, Qatar was the larger producer of LNG with a production of 80 million tonnes, slightly ahead of nameplate capacity of 77 million tonnes. As explained earlier, Qatar has signaled that they will expand their production capacity by another 33 million tonnes. Furthermore, Qatar is also the 70% owner of Golden Pass, which was recently sanctioned, and they -- and Qatari will acquire the vessels for the JV, Ocean LNG. Hence, they need to order ships for close to 49 million tonnes of new capacity. Since Golden Pass in the U.S. have a longer sailing distance to market than Qatar, this project require more ships per tonne of capacity. In addition, Qatar has 25 old steam vessels in the 70-vessel fleet, and these vessels could potentially be replaced in due course given their low level of efficiency.So last slide before we wrap up is an overview of the LNG trading. As mentioned, we estimate incremental production growth of 33 million tonnes in 2019, in line with Shell's recent LNG outlook projection of 35 million tonnes. The new production will mainly come from 3 places: U.S. with 15 million tonnes; Australia with 10 million tonnes; and Russia with 5 million tonnes. U.S. and Russia have far longer sailing distance to key Asian end user markets than traditional exporters. And the Asian markets represent normally about 3/4 of LNG demand.During 2018, about half of the U.S. cargoes took the long route to Asia, 30% ended up in Latin America, while only 13% went to Europe. Lately, this mix had altered, with Europe taking a larger share, affecting shipping demand. In first quarter 2019, Europe's share was 43% compared to 7% in the first quarter of 2018.Given the recent shift in trading pattern, we have reduced the shipping multiplier for U.S. and estimate the increased vessel demand of about 50 ships in 2019, while there will only be about 42 deliveries in 29 (sic) [ 2019 ] in total. Hence, the market is expected to become increasingly tighter during 2019.In 2020, the market will become even tighter due to 80% of the volumes arriving from the U.S. Demand growth is expected to be around 56 ships while deliveries are only 34 ships. This is a year where we, as mentioned, have 41% of the uncommitted vessels. In 2021, there will probably be more vessels than new volumes, but the market is then in a strong deficit, so this is more a realignment.Okay. I will then summarize today's presentation. We delivered revenues of $19 million, in line with guidance. We're not happy with the numbers, but they reflect a soft quarter at the start of the year.On Thursday, we received the thumbs-up from SEC and our registration statement is thus effective. We expect to commence trading at New York Stock Exchange during June, reaching out to a larger investor base. With the bank financing and the Glovis deal, we have secured $550 million of new financing, ensuring attractive long-term financing as well as boosting our liquidity position, which will give us increased financial flexibility.We have booked all days in Q2, so TCE should improve slightly despite a fairly long positioning drawn for Flex Ranger, which is expected to pick up NOLs first cargo from Corpus Christi in the U.S. As described, we remain positive to the near term and long-term outlook due to the compelling drivers for LNG in relation to price, demand and environmental footprint.And lastly, we are well positioned with the most modern fleet with still an average age of less than 0. And with the right ships at the right time in the right market, we think we will able to capitalize on the improved fundamentals, particularly within our ship management within the end of the year.So that's it. I will pass the rod back to Annette who will check whether there are any questions. Thanks.

[Operator]

[Operator Instructions] And the first question comes from the line of Greg Lewis, BITG.

[Gregory Robert Lewis, MD and Energy & Shipping Analyst]

So you made some comments about the time charter market. Clearly, that's going to be a focus at a certain point for Flex. Could you talk a little bit about what we're seeing in terms of depth of the time charter market? Are there -- is there availability of time charters? What is the duration of some of these time charters? As we think about mid-cycle, are they around the mid-cycle rate, are they below, above? Just kind of curious about how that market has been developing.

[Øystein M. Kalleklev, Chief Executive Officer]

Okay. Thanks. So it's a good question. Of course, the time charter market is not usually the most liquid. It depends. It goes in cycles. What we have seen recently I would say is more inquiries of term charters. And of course, there was BP time chartering in the market recently where they took up some ships. We also see more 12 to 24 months inquiries in the market. There's something wrong with the microphone. Greg, could you mute?

[Gregory Robert Lewis, MD and Energy & Shipping Analyst]

Yes. Sorry about that.

[Øystein M. Kalleklev, Chief Executive Officer]

We generally see more inquires also for 12 to 24 months. I think a lot of people are seeing the same thing as we do see. It's a decade-low TCF -- and a decade low -- a very low TCF price in Europe. It's fallen below $4 now, which means that you have a decade high contango spread. So when you have something which is very cheap today and much more expensive later, it do tend to create some incentives to store or position ourselves for such a trade or where you can basically pick up cargo cheap in Europe and sell it to Asia. And the good thing today is you have a liquid derivatives market where you can offset the risk immediately. So we do see more activity. We have seen some 12 months' time charter, 8 to 15 months' time charter in the market for second half of the year with big premium to the spot market. So of course, for us, if we are to consider 12 months' time charters for the second half of the year going into 2020, we need to see 6 digits because the market will become increasingly tight and there's not really a lot of the big ships available in the market.

[Gregory Robert Lewis, MD and Energy & Shipping Analyst]

Okay. And then just following up on that. Do you get a sense that most of these inquiries are coming from I guess what we would call traditional LNG players are more on the trader -- more from the trader side?

[Øystein M. Kalleklev, Chief Executive Officer]

I would say, it's portfolio players and the traders mostly. Yes.

[Gregory Robert Lewis, MD and Energy & Shipping Analyst]

Okay. Great. And then just one more final one for me. When we think about -- you mentioned that 2 million tonnes of LNG that kind of -- it's unclear where that is. Is that something that we've seen in the past before? Is there any kind of way we should be -- about that? Is that a function of maybe where gas prices are? Or is it just kind of still wait and see? And I guess is there any historical precedent behind a magnitude of that amount of gas going missing?

[Øystein M. Kalleklev, Chief Executive Officer]

No. It's numbers we take all the time, and we saw the same thing last autumn. And of course, the reason then was that suddenly, you had 30 ships being on floating storage. So what these numbers tells us is how much is the export, how much is the import. And over time, those should match. So the kind of the delta is somewhere on our ship. We adjust the numbers for the boil-off and we see that the boil-off is around 5%. If you have a 30-day journey, you have 1% boil-off, that's 3%, and then you lose also some on the cargo handling when you take in the cargo and discharge the cargo. So it's a plausible number, and it matches very well with historical data. So there's 2 reasons why you could have this delta spread. It's either or actuality. It could be poor data quality, but that's not been the case in the past. It could be floating storage or it could be a shift in trading pattern. So if you have cargo suddenly going much longer journeys, they could be on our vessel for a longer time than they used to be in the past. So these are numbers we are following. 2 million, it's a very big number in 1 month. So these are the live May data, so -- but it also fits well with the inquiries we are getting from players in the market with the -- where we do see people positioning themselves for this. And Bloomberg had a article on 17 of May about this trades being developing.

[Operator]

This was the only question we had so far. [Operator Instructions] There are no further questions at the moment. Please continue.

[Øystein M. Kalleklev, Chief Executive Officer]

Okay. Then, I would like to thank everybody for dialing in or following our webcast. And I wish you a happy weekend. Thank you.

[Operator]

Thank you, ladies and gentlemen. That does conclude our conference for today. Thank you for participating. You may all disconnect. Speakers, please standby.