FLEX LNG Ltd

OSE:FLNG

Earnings Call Transcript 2021-Q4

[Operator]

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

[Oystein M. Kalleklev, Chief Executive Officer]

Thank you, and I welcome, everybody, to Flex LNG's Fourth Quarter and Full Year 2021 webcast. I'm Oystein Kalleklev, the CEO of Flex LNG Management, and I will be joined today by Knut Traaholt, our CFO, who will talk you through the financial numbers as well as our recent refinancing a bit later in the presentation. As always, we will conclude with a Q&A sessions. [Operator Instructions] Well, first, before we start, we remind you of our disclaimer as we will provide some forward-looking statements in relation to future revenue guidance. We'll also use some terms like time charter equivalent earnings and adjusted earnings and EBITDA, which are non-GAAP measures. And there are limits to the completeness of details we can find in this webcast. So we recommend that the presentation is read together with the earnings report, which we also released today. So let's kick off with a short summary of our highlights, Slide 3. First of all, we are pleased to deliver knockout results with the best-ever quarter on most financial measures. Revenues came in at $115 million slightly ahead of our revenue guidance of approximately $110 million. When I was putting the final touches on the slides last night, I put in that time charter equivalent earnings were the best ever with our average TCE of $95,900 per day in the fourth quarter. I recall that when I presented our Q4 2018 results, we had a bullet point with TCE for the quarter of about $95,000 in the earnings presentation. However, following our listing in the U.S. in 2019, we had to provide most stringent non-GAAP details about historical TCE earnings. And our accountants actually found out that the TCE in Q4 2018 was slightly higher at $97,500. So I apologize for the late our mistake. But that said, this is probably the first time at least I have seen a shipping company revising [ after ] historical TCE numbers, it's usually the other way around. During 2021, we acted on improved to market and secured 8 or possibly 9 fixed hire contracts with a minimum firm duration of these contracts between 3 and 5 years. I think our ability to attract long-term attractive term employment with super majors and other top-tier clients demonstrate not only that we have state-of-the-art ships in our fleet, but also that our seafarers and onshore personnel are delivering a first-class service, both in terms of safety and reliability to our charters as several of them are repeating customers of ours. So a special thanks to the crew and onshore staff that are keeping the propellers turning despite the many challenges caused by the COVID-19 pandemic. While a lot of folks are these days heading back to their office, I can tell you that seafarers are still facing many needless obstacles when it comes to crew rotation, particularly in Asia, where about 3 out of 4 cargoes ends up. So we do hope that restrictions and limitations will also be eased for our crew during 2020 (sic) [ 2022 ], so we can get back to normal. Hence, in Q4, our spot exposure was related to 4 ships. One ship Flex Volunteer was trading in the spot market, while 3 ships were on variable higher contracts where the earnings are linked to the spot market. With all 13 ships on the water, our spot exposure was, therefore, about 30% in the quarter, which is significantly less than in the past. As our cost base is more or less fixed, at least in the short to medium term. This means that higher top line trickle down directly to the bottom line and we, therefore, delivered all-time high net income and adjusted net income of $69 million and $63 million, respectively. Adjusted earnings are slightly lower because we are adjusting out our significant gains on our interest rate hedges. While the Fed has been behind the curve on interest rates, we have been ahead of the curve, securing a substantial part of our interest rate exposure at low levels, as Knut will explain. Earnings per share came in at $1.31 per share with adjusted earnings of $1.18 per share. Given the fact that we have locked in premium backlog, coupled with our super strong financial position, the Board last quarter decided to increase our dividend level to $0.75 per share, which we said was a level we were comfortable with in the longer run. Hence, we are again declaring a quarterly dividend of $0.75 per share, which gives our shareholders an attractive annualized running yield of about 15%. In November, we announced our balance sheet optimization program, by derisking our commercial strategy through adding substantial long-term premium backlog, we decided to explore financial alternatives with the aim of unlocking $100 million of cash from our balance sheet. Today, we are announcing $695 million of new financing. This financing will together release another minimum $87 million on cash on top of the $38 million which we released through the sale leaseback of Flex Volunteer, which was announced in November and executed in December. As Knut will explain, we have thus already over-delivered on the program initiated in November with $125 million unlocked overall which will contribute to further grow our cash balance, which, by the way, stood at $201 million at year-end. Hence, we have a super strong liquidity position, and this enabled us to quickly act on opportunities if they arise, but also it secures our ability to maintain an attractive dividend level. Lastly, I would like to point out that 93% of available days in 2022 is already covered, which gives us a pretty accurate assessment of where revenues for the year will end up. So turning to Page 4 and our fleet status. As you can see, charter coverage for 2022 is already 93% with substantial charter coverage also for 2023 and 2024. During Q1, we have a couple of ships coming off shorter-term charters and going on longer-term charters. In February, Flex Freedom will be redelivered from a 10-month time charter and delivered on a minimum 5-year charter with a super major. Flex Constellation is currently serving a minimum 3-year time charter with a large trading company. Flex Endeavour, Ranger and Vigilant was delivered during last summer to Cheniere on time charters with a minimum duration of 3 to 3.8 years, with Cheniere also taking 1 or 2 additional vessels from us during third quarter this year. In February, Flex Aurora was also redelivered from a shorter-term time charter, and we recently secured a short-term flexible time charter of 5 to 7 months, which match exactly with the delivery window for ship #4 and/or #5, with Cheniere. In January and February, we are also delivering Flex Courageous and Flex Resolute on our 3 plus 2 plus 2-year time charter with a super major after these ships also being employed on shorter-term time charters in 2021. As mentioned in the third quarter presentation, you can see that several of our ships are coming off shorter-term time charters and are now commencing longer-term charters with higher earnings. So we are thus repricing our portfolio at better levels for longer periods. Flex Rainbow was recently extended by 1 year with a large trading company, so we will now get that back in early 2023. With few modern ships available in the market near term, we thus find Flex Rainbow well positioned. Flex Volunteer is the ship that we elected to keep in the spot market during 2021, which was a smart move given the strong spot market last year. The spot market so far in 2022 has, however, been very challenging. So we don't have high expectation when it comes to earnings for this ship in Q1 this year. And I will provide more information about the spot markets a bit later in the presentation. Our expectation is that Flex Volunteer or Flex Aurora will be the fifth ship going to Cheniere for a minimum period of 3.5 years, starting in Q3. Lastly, we have 3 ships on variable hire contracts. This being Flex Artemis on a minimum 5-year variable hire contract with Gunvor as well as Flex Amber and Flex Enterprise. Both Flex Amber and Flex Enterprise were recently extended by another year and the charter has 1 additional extension option for these 2 ships. So these ships will come open during 2023 or 2024, which is still ahead of the large newbuilding order book in 2025. So we are also a bit about the prospect of securing these ships good contracts when they are redelivered to us unless we decide to trade them spot. This really depends on the market, both spot and term market and where we think we can find the best value. Slide 5, our earnings visibility. I've already covered our backlog extensively on previous slide. On Slide 5, we also illustrate how our charter coverage develops over the next couple of years in percentage of covered days each quarter. Most of the backlog is now fixed higher, but we also maintained some variable higher backlog, which gives us exposure to the spot market. We also do have some ships coming open in this period. And as mentioned, we will decide whether to employ them in the spot or shorter-term market or whether we will be fixing them on longer-term contracts. So time will tell. So stay tuned. Slide 6. Yes. So let's jump to the revenue guidance, which is probably the analysts' favorite slide as they now can have an easy job of updating the financial models. This slide shows the revenue guidance for the year. In May last year, following our recent fixture of several of our ships, we provided revenue guidance for the remaining quarter of the year given the derisking of our chartering strategy. That guidance we overdelivered on with revenues for the year of $343 million. Given the fact that we have covered 93% of available days in 2022, we can also provide a good estimate of our expected revenues for the year. We do, however, have Flex Volunteer trading spot at least during the first half of the year, and we have 3 ships on variable higher. So the achieved revenues will depend on the spot market development as well as us being able to successfully achieve the high uptime, which we have done in the past. As I will touch upon a bit later in the presentation, the spot market has been weak in the first quarter, and this impacts our spot-exposed ships adversely at the start of the year. So we do expect that revenues will be slightly below the levels we achieved last year when the spot market was booming at the start of the year, and when we had substantially higher exposure to the spot market. Nevertheless, we do think that the revenues will not come in significantly below the level during Q1 last year. As we do have higher charter coverage, we do, however, expect the revenues to be quite a lot higher in Q2 this year and somewhat higher in Q3. Whether we will see another freight market boom in Q4 this year, it's too early to tell. But since we do expect that Cheniere will utilize the option to take the fifth ship, we expect those spot exposure to be slightly lower in Q4 this year. And thus, we expect the revenues to be somewhat below the level we managed to achieve in Q4 2021. Overall, however, revenues are expected to be in line with the healthy revenue levels of 2021. So we expect that 2022 will be another good year for us, which is maybe not too surprisingly with our coverage. Now turning to next slide, turning from the analysts' favorite slide to the investors' favorite slides, dividends. We have covered our dividend philosophy in length during the second and third quarter presentation. So I'm not going to repeat all the factors and considerations we evaluate when setting the appropriate dividend level. However, I still want to repeat that we use a balanced and measured approach to conclude a sustainable dividend level with the aim of distributing our free cash flow over the cycle. I know consensus estimates predicted at even higher dividend for the quarter given our stellar earnings. And I can admit that 64% payout ratio probably would not impress Cheniere train much. However, when we hiked our quarterly dividend level to $0.75 last quarter, we also communicated that we wanted to set a dividend level, which we think is sustainable over the longer term. Despite our substantial backlog, our earnings will bounce a bit up and down given our exposure to the spot market. So if you look at the year overall, we generated adjusted earnings per share of $2.71 per share. We declared dividends of $2.3 and we acted on the opportunity to buy back shares with a total of $0.15 per share utilized for this purpose. Hence, total shareholder distribution for the year was $2.45 per share, which translates to a 90% payout ratio. In addition, we took delivery of our third -- of our 3 last newbuilding during 2021. And the net CapEx in relation to this was about $17 million or $0.33 per share. If we add these capital expenditures, we actually spent $2.78 on shareholder distribution and CapEx during the year, which is slightly higher than adjusted earnings per share. Despite the high payout ratio and some CapEx, as mentioned, we still managed to grow our cash pile during the year from $128 million at the start of the year to 208 -- $201 million at the end of the year. So with that, I think it's a convenient time for Knut to provide some more details about the financial numbers and our balance sheet optimization program before I will revert with some market updates.

[Knut Traaholt]

Thank you, Oystein. We'll start with some key figures for 2021. And at the left of the graph, we see the total operating days with a 70% increase in total operating days illustrates the fleet newbuilding program or fleet growth plan where we have had the full earnings capacity from the second half of the year. The TCE numbers for -- that Oystein already mentioned, was just in shy of $96,000 per day for Q4. For the total year, the $15 per day increase year-on-year is mainly driven by the super strong performance by the 3 vessels on variable hire contracts and the Flex Volunteer trading in the spot market. Going to the cash breakeven. We're also delivering on strong cost control with the breakeven for the year at $43,700 per day. This is compared to the guiding 1 year ago, about $45,300 per day. During the year, the OpEx has been affected on average about $600 per day by COVID-related costs, where $400 per day is direct COVID-related costs, while about $200 per day is indirect COVID-related costs. These are typical terminal restrictions, making crew handovers more challenging and, therefore, so more expensive. Despite the Western world opening up and easing travel restriction, as Oystein mentioned, we still experience restrictions for crew changes, and we'll also -- we also expect to have COVID-related costs going into 2022.We then turn to Slide 9. With the larger fleet, we're also delivering all-time high revenues for the quarter, about $115 million and above the guiding of $110 million given in Q3. And also all-time high revenues for the year were $343 million in total. This translates into an adjusted net income of $63 million for the quarter and $145 million for the year. That's a giant leap compared to 2020 and reflects our fleet growth, market exposure strategy, combined with the hot LNGC markets. Similarly, the adjusted EPS of $1.18 per share for the quarter, translating into a solid $2.71 per share for the full year. The adjusted net income and adjusted EPS are adjusted for fluctuations in the fair value of our interest rate swap, where we recorded a gain of $7.4 million for the quarter and $18 million for the total year. As interest rates has continued to increase during 2022, the fair value of our interest rate portfolio has further increased by $1 million so far this year.If we turn to Slide 10. And we're moving to the cash flow. So despite Q3 dividend of $0.75 per share or total $40 million, which were paid out in the quarter. We increased our cash balance with $63 million to a total of $201 million at the end of the year. And that is, as mentioned, due to strong cash flow from operations and the release of about $38 million under the balance sheet optimization program related to the Flex Volunteer refinancing.And we can turn further to Slide 11 and our balance sheet, which is extremely straightforward. We have a fleet of modern state-of-the-art LNGC vessels with an average age of 2.2 years and with a book value of about $2.4 billion, on average book value of about $180 million per vessel. In addition, we have a solid cash position, as already mentioned, of $201 million. The balance sheet is funded by a portfolio of attractive long-term leases and bank facilities, about $1.6 billion or 65% of our balance sheet. This results in $890 million in equity or a 35% book equity ratio.On the next slide, we look more into the development of the balance sheet optimization program. So we'll turn to Slide #12. The Flex Volunteer transaction announced in November and executed in December was the first transaction under the $100 million balance sheet optimization program. And today, we announced 2 new financing under the same program, which will support the target of freeing up liquidity, reduce cost of debt and maintain our industry-leading cash breakeven rates. We have received 2 credit approved term sheets for an aggregate amount of $695 million for the financing of 5 ships and in addition, an uncommitted accordion option to upsize the bank facility with $125 million, and they are adding an additional ship to the facility. The new final things are subject to final documentation and normal closing conditions and is expected to be closed during the second quarter. On the bank facility, that is split in a $250 million non-amortizing RCF and a $125 million term loan facility, both with a tenure of approximately 6 years. The total facility is repaid on an average age adjusted repayment profile of 22 years. And we have allocated all amortizations to the term loan, so we will have a bullet RCF. That will give us significant financial flexibility, and we will be able to reduce interest costs by managing the utilization of the RCF when we have a large amount of free cash. The accordion option gives us the flexibility to consider the best funding alternative for the last vessel and has identified as Flex Enterprise. The two 10-year leases will release significant amount of cash, which enable us to part fund and we pay higher levered vessels as the Flex Endeavour and Flex Enterprise, which are funded with 2 leases today. In total, the net proceeds of this is about $87 million. And as noted in the presentation, if we decide not to refinance Flex Enterprise with accordion option, we may free up an even higher amount. On the back of these financings, we are upsizing the target of the $100 million to minimum $125 million and also guide that we will complete the program ahead of the targeted or announced completion within 12 months. We are very pleased with the terms we have offered -- been offered, and that reflects also our attractive position and track record in the credit market. The 2 transactions meet our targets of longer durations, increased financial leverage, reflecting the lower operational leverage, reduced cost of debt and longer repayment profiles. So with that, we also thank our lease providers and thanks for their commitment and continued support to Flex LNG.Then we turn to the next slide. After the completion of the transactions we announced today, we will push our first maturity payments from 2024 to 2028 and 2032, respectively. Hence, the only debt maturity on the horizon is the $250 million commercial tranche under the original $629 million ECA facility financing 5 vessels. Given the quality of these vessels, modest leverage and time to maturity, we consider this as a quite manageable maturity and rather consider them as a possible candidates for future balance sheet optimization initiatives. On the right-hand side of the slide, we have had a number of incoming questions regarding our dry dock schedule and -- as some of our vessels are approaching their 5-year anniversary. As shown in the graph, the dry dock CapEx commitments are marginal over the next 5 years. And in addition to the CapEx shown here, we estimate about approximately 20 days offhire in connection with each dry docking.And with that, I conclude the financial review and hand it back to you, Oystein.

[Oystein M. Kalleklev, Chief Executive Officer]

Thank you, Knut. Knut joined us here in May last year and after working as a senior bank for the last 15 years and some of his fellow bankers asked him what the hell he was going to do as CFO in Flex, given the fact that we had already financed the whole fleet. So while I think we have proved that we can still put him to good use with our balance sheet optimization program. That means we are not only happy with the utilization of our fleet during 2021, but also with the utilization of our CFO. So keep it up in 2022, Knut, 100% utilization is the minimum bar.So let's start on the market section. In our market section in November, in connection with our Q3 numbers, we presented growth figures for the LNG market with 17 million tonne growth of -- in the period between January to October. LNG export growth slowed in the last 2 months of the year due to outages and slower export growth in the U.S. as they recorded 0 cargo cancellation during November and December 2020. However, U.S. still managed to increase their export by an impressive 23 million tonnes during 2021, which was actually 120% of the market growth. In any case, we ended up at 19 million tonnes export growth or about 5% growth in 2021, which is pretty decent. That's about 6 million tonnes lower than our expectation going into 2021 with the shortfall caused by lower exports, primarily from Nigeria and Trinidad and Tobago, due to feed gas issues. Norway's decline was, however, expected as the LNG plant at Melkøya is set for to resume operations during Q2 this year. Egypt also staged a big comeback in 2021 with 5 million tonnes of export growth, and there are more potential in Egypt for future growth.On the import side, demand was driven primarily by China, which added 10 million tonnes of imports, South Korea with 6 million tonnes and outlier Brazil, which surprisingly added 5 million tonnes due to drought caused by La Niña, which affected hydro balances adversely. But this just goes to show the advantage of having LNG import terminals as LNG can swiftly add flexible capacity if needed. So there are some lessons there for the biggest natural gas consumer in Europe, Germany, which still do not have a single LNG import terminal. Germany have had a couple of LNG import terminals on the drawing table for some time, but have not been able to go forward due to political bickering and incoherent energy policies. In our Q3 presentation where we presented imports from January to October, a negative outlier was Europe, which had imported 9 million tonnes less than in 2020 or about 12%. With more flows to Europe in November and December, Europe's LNG import was only down 2 million tonnes for the full year compared to 2020. Yes. Slide 15. Yes. Before talking more about European LNG imports, let's have a look at U.S. exports and the tremendous growth rate. In 2021, U.S. exports bounced back nicely with continuous growth during the year, with the exception of February when the big fees curtailed exports. In December and January, U.S. was, in fact, the world's largest LNG exporter surpassing both Australia and Qatar. And this is before the taps are turned on, on the 2 new liquefaction projects, Calcasieu Pass and Sabine Pass Train 6, which will add another 15 million tonnes of U.S. export capacity this year. So we are in for a real LNG nail-biter this year, who will be the biggest LNG exporter in 2022. Our estimate is that Australia and U.S. will be neck-and-neck at around 82 million tonnes, slightly ahead of the 79 million tonnes of expected exports from Qatar. But with these LNG prices we are seeing today, we can expect exporters to try to squeeze every single methane molecule through the liquefaction plants in order to bring the good stuff to the market. So it will, for sure, be a fulfiller.Slide 16 and returning to Europe. While we in our third quarter presentation had a slide about the pull of cargoes to Asia, this time, we have to talk about the pull to Europe, which already touched upon. So while in January this year, imports to Europe was up almost 400% from the lows recorded in July this last summer and also January 2021 when imports to Europe was hovering at around 4 million tonnes. So this goes a long way to explain why the spot market is starting soft this year. Last January, we had a big pull to Asia, driving up tonne mileage. This January, we have seen Europe gobbling up flexible LNG cargoes and diverting those cargoes away from Asia. So if you head back to Slide 17 and U.S. So with Europe in a severe energy crisis by November and December, a flotilla of U.S. LNG exports saved the day. While we can admit that Europe was also fortunate with the weather gods given the somewhat warmer winter weather than expected. So keep in mind that most LNG are sold and bought not on a flexible manner. Most LNG are sold under long-term contracts, typically with destination clauses prohibiting deviation of cargoes. However, the vast majority of U.S. volumes have no such destination clause. So U.S. were able to shift volumes towards Europe with the European market share of U.S. LNG going from only 15% during July, August, to 75% by January this year. So this goes back to my point about having LNG import terminal is a very good risk strategy, and not only a very easy way and quick way of phasing out coal.So Slide 18, it just shows the pull to Europe on more on a global aggregated basis with Europe doubling its global market share from 15%, 16% during the summer to about 33% January this year. As illustrated, most of the increase in European imports came from the U.S. As you can see, the pull to Latin America, which I also mentioned, and then in particularly, Brazil, came during their winter season, which lasts from May to September.So Slide 19, wider spot freight market soured in December. So if you are an attentive viewer, I think you already figured it out. It's the West/East arbitrage. So while in November 30 -- so during the October, November, the arbitrage from West to East widened, we have been trading at $1 to $3 level during the early phases of the autumn. And this arbitrage shut up to a level of $5 to $7 during October and November, which meant that a lot of cargoes were pulled from the Atlantic Basin into Asia. So at November 30, the Asian spot price stood at around $37 per million Btu, $6 higher than the European gas price. So this meant that our cargo in Asia was worth $24 million more than the cargo value in Europe, and this incentivized this flow of cargoes to Asia rather than Europe. But at one point here, the energy crisis in Europe became so severe. This is due to the fact that Russian pipeline flows were keep disappointing and energy -- gas storage levels were hitting all-time lows. So when the security situation in Ukraine became tense, the European gas market more or less exploded with gas prices in Europe going haywire. So while we saw Asian gas prices hitting a high in October of $56, we saw European gas prices in December -- on December 21, rallying all the way up to $60. And with that West/East arbitrage shutting, so in 3 weeks' time, we went from a profitable $24 million West/East arbitrage to a minus $60 million arbitrage spread. So this, again, as I mentioned, resulted in U.S. cargoes heading for Europe, and that also meant that sailing distances plummeted. So if you are taking a cargo from U.S. heading into Asia, you are traveling around 10,000 nautical miles. During October, November, we also had severe congestion in Panama. So a lot of cargoes had to go through a Cape of Good Hope, which adds another 5,000 nautical miles to the voyage, bringing it to 15,000 nautical miles. So if these cargoes are then instead going to Europe, travel distance is shortened to 5,000 nautical miles. So it means you need a lot less ships in order to transport the same number of cargoes. And this is why we had this quick and rapid softening of the spot market during December and into January.So if we look at this -- the product market as of today, on Slide 20, it's here. So I was sitting up late last night and waiting for the Platts' report. The kind of the tensions in Ukraine at least on the surface East, and this resulted in gas prices in Europe, plummeting and settling in at around $22 per million Btu, and they are even down a bit further today. So this actually resulted in the West/East arbitrage opening again because JKM or Asian spot prices settled at $25.4 yesterday. So let's see. It's -- the gas market is very volatile. Prices are going up and down quite a lot, but at least the gas market -- a snapshot of the gas market today looks a bit more conductive for the spot market. So if we are then jumping to the spot market and a short review of 2021. We started 2021 at all-time high levels. As I previously illustrated, the pull to Asia was very strong in January last year with Europe not being able to source much of the U.S. cargoes. We had us a brief dip in the market during March, April, when actually JKM hit a lower of $5.7. But then the market bounced back very quickly during April, May, driven by our huge pull to Asia, as I mentioned, with the rapid growth of especially South Korean and Chinese demand. So we had a very conductive summer market with LNG spot market rates for modern tonnage, moving like a snake from around $70,000 to $100,000, which is pretty good for the summer months. And then rates took off when we approached the heating season, which they usually do, and we hit another high of around $300,000 in November, early December before, as I mentioned, this West/East arbitrage closed, sailing businesses dropped and cargoes were heading to Europe and thus, the spot market fell from $300,000 and continue to fall into 2022 at a level today of around $40,000 per day.So if we head to the next slide. We have had some questions from investors who have noticed Baltic and the Spark being slightly negative and also Bloomberg picked up this story with freight rates for LNG carriers below 0. So how can it be that headline rates are $40,000 while the Baltic Index and the Spark is quoting negative numbers. So I spent some time in the past trying to explain this freight markets in terms of LNG, where we are operating on a time charter basis, where the freight rate consists of basically 3 elements. It's the headline rate quoted by [ Orcus ]. It's the ballast bonus, and ballast bonus condition can shift quickly from strong to very weak as they are today, and then there's a positioning fee element. So these 3 elements make up the earnings for our owner. And then you need to add this all together and divide by a number of days utilized for the voice to calculate your time charter equivalent earnings. And depending on the market sentiment, these can go from one-way economics, full round-trip basis to three-way economics, and I will illustrate this a bit on the next slide, please.So let's start with the easy one, which is like the normal market, which I would characterize last summer. So last summer, we had a pretty conductive market and the market what was at what I would consider a round-trip market. So in such a market, you typically -- if the rates are $75,000, you get paid for both ways. So you get paid for the laden leg, of course, but you also get paid for the ballast leg back to load port. So in such a market, the headline rate is similar to the time charter equivalent rate quoted by Baltic and Spark. Then we went from a very conductive market in the summer to a hot market during October, November and partly December. And in such a market, you have a scramble for available ship because the market is more or less sold off. So in such a market, you can actually go from two-way economics to three-way economics where you also, in addition to getting paid for the ballast and laden leg is also getting paid for the positioning leg, which is actually then can take TCE levels well above headline rates. So for example, if you have a ship in Atlantic Basin, you are competing for the transportation of a U.S. cargo, and your only competitor is a guy with a ship in Singapore. So the guy in Singapore, he needs to have a long ballast leg from Singapore to U.S. and then maybe this cargo is going to Japan, and then he gets a ballast bonus back to load port in U.S. So if you then have a ship in Atlantic, you can, therefore, add on a positioning fee because you are closer to the load port, which are then boosting your earnings. In a soft market, which we have seen at the start of the year, you are then -- you can then end up in a one-way economics where you only get paid for the laden leg. So if the laden leg is paid $40,000 and you're not getting paid for the ballast leg, your kind of economics is $20,000 per day. But in this environment, where you have high fuel prices, both fuel oil or compliant fuel, LNG that can bring the time charter equivalent earnings down to 0 or even slightly below. So why would you do that? Well, it could be that you have taken heel onboard, and that heel is sunk cost because you will have some boil-off from the ship and then you basically have to flare the boil of gas in the funnel. So rather than just wasting it, you might as well position the ship, do a cargo and get some earnings rather than none. So of course, usually, these markets don't last long, but it can happen in a soft market, which we have seen in January.If we then head back to a bit more [indiscernible] market, which is the term market. So while the spot market has softened during January and February, the term market has been holding up pretty well. The 1-year time charter rate quoted by Fearnleys, which is the best proxy for next 12 months earnings has fallen from $125,000 to $100,000 per day, but $100,000 per day is still pretty decent earnings. The Affinity 3-year time charter rate hasn't moved at all. So that rate is still $90,000 per day. And it basically reflects the fact that the freight market looks pretty solid on paper for 2022. As I will present shortly, we do expect volumes -- or export volumes to be even higher in 2022 than 2021. We expect volumes to grow 25 million tonnes compared to 19 million tonnes last year, while the order book of new ships is almost half. So we do think the spot market will rebalance and improve during the year and availability of modern tonnage for the next couple of years is tight because most of the ships in the order book are committed. And right now, it's hard to get yard slots for -- even for delivery in -- it's getting really hard to get for '25, and even '26 is looking pretty tight. So that means that term rates are holding up, and there's also another reason for term rates holding up, which I will cover on Slide 25. Okay. Knut, if you can jump. Okay. So that's newbuilding prices. Our newbuilding prices has been picking up for quite some time now. We have seen a flurry of orders. This firstly driven by a lot of projects, which I will also cover. There's a lot of new projects coming to the market, and these projects need new ships. Additionally, which I will also cover, there are a lot of old ships that need to be replaced and higher steel prices, higher material prices, cost inflation and the fact that the yards are preoccupied with a lot of container orders had pushed newbuilding prices upwards with the recent orders quarter that somewhere around $220 million to $225 million. So if you're buying a ship at $225 million, of course, you need to have a higher term rate to reflect the capital outlay for that ship. So we were buying ships when nobody else were buying ships in 2017, at least on a speculative basis. In 2017 and early part of 2018 newbuilding prices then were hitting off bottom for the new MEGI/XDF of around $180 million. So we're not rushing to the yards, ordering new ships today. We are focused on employing our ships in the best way, and we have done that successfully in 2021, and we'll continue to build on that in 2022.So as I mentioned on -- jump to 26. So as I mentioned, newbuilding orders are driven by 2 things. It's the growth of the market. And there's a lot of new projects coming to the market. And it's also related to the fact that we have a lot of old inefficient ships in our fleet as illustrated by this graph. So mass -- it's not the typo in the headline, we have some regulation coming into force next year, which is called the EEXI. And we do think, and we have argued for a couple of years now that this will create a lot of more demolition of older inefficient ships. And I think even if you didn't have this regulation coming into force, you will still have a big increase in scrapping of older ships due to the simple fact of economics. With this kind of high LNG prices we are seeing today, our ships are about 60% more efficient than an old steam ship. So when you are burning either compliant fuel with oil prices above $90 or LNG with high LNG prices having a modern efficient ship has a great value for the charters who actually pay for the fuel. So we have seen more orders. As I mentioned earlier, there's not that many ships coming to the market in 2022. So newbuilding orders will drop substantially from 2021 to 2022. And this, combined with pretty high growth level is why we think the market will rebalance this year. And also in 2023, the order book is fairly small. A lot of the ships coming in 2023 are specialized tonnage for the Russian Arctic trade, which usually don't compete in the more regular conventional LNG carrier market. In addition to EEXI, we also have the European Union implementing carbon taxation for shipping. So this will also come into force now. And that will also penalize the older, less efficient ships.So let's head to LNG prices. So as I mentioned, LNG prices are high last quarterly presentation in November, we said that LNG market will be tight and prices will gradually normalized by time of 2023, but the future curves have just gone up, and we are in for high LNG prices for quite some time according to the futures market. And actually, the people with oil priced indexed LNG contracts, which has suffered in the past because the contract price has been much less than the spot LNG prices. They can now finally smile for quite some time. So even though oil prices are high, the contract price of $10, $12 looks very attractive today. And as I mentioned, these high gas prices will favor modern tonnage. Heading to [indiscernible], I already mentioned this a bit. We do think export growth will be strong this year. It's driven by U.S. As I highlighted earlier, U.S. have 2 new projects coming onstream this year, and they have some organic growth. We and the Energy Information Agency in U.S. think growth will -- U.S. will add around 20 million tonnes this year. Norway will start off the LNG plant sometime in Q2 at probably around 2.5 million tonnes. Both Nigeria and Trinidad and Tobago have projects to solve their feed gas issues, which they think will be corrected somewhere in the middle of this year. So we do think that both Trinidad and Tobago and Nigeria will add about 2 million tonnes of additional export this year. Russia has a new project this year. So we do expect growth of around 2 million for Russia. We think there are some possibility of both Israel and Qatar producing somewhat higher in 2022, especially given the higher LNG prices. So all in all, we add this up to around 25 million tonnes or 6% growth for 2022, slightly higher than what we saw last year. So I mentioned -- 29, yes. Just jump to 29. And yes, as I mentioned, there are several new projects, and this is one of the big drivers for all the newbuilding orders. We have several projects in the U.S. and of course, this big Qatari project with Qatar today also announcing another round of newbuildings, of course. And in the end, as I mentioned in the past, we do think that this will result with Qatar is probably ordering around 100 ships in total. So that will certainly lock up yard slots, and we'll keep LNG newbuilding prices at fairly elevated levels.So let's conclude. So again, we delivered stellar revenues, $115 million for the quarter, TCE of $96,000 per day. Our EPS fantastic at $1.31 and $1.18 adjusted for our derivative gains. We have covered 93% of the year. We are continuing to pay this $0.75 dividend, which gives us, our investors are very attractive yield in this low interest rate environment. We are a bit about the market, even though the market is softer than expected in Q1 due to this West/East arbitrage being closed for most of the year so far. And then we have a solid cash balance, $201 million at year-end. And with this new financing that Knut has talked about, we are adding another $87 million on top of that.So with that, I think it's time to do some questions. So Nadia, maybe you could see if there are some questions on the teleconference first.

[Operator]

[Operator Instructions] Dear speaker, there are no questions from the audience at this moment.

[Oystein M. Kalleklev, Chief Executive Officer]

Okay, and thanks. I do think we have some chaps' questions, so maybe you can just shoot them over, Knut, to me.

[Knut Traaholt]

Yes, we have some questions from the web. Congratulations on the Q4 results. Can you please comment a bit on the EU emission plan for shipping?

[Oystein M. Kalleklev, Chief Executive Officer]

Yes. Yes. I think I already touched upon it. So EU have decided to broaden the scope of their emission trading system which will also include shipping, which will be phased-in now from 2023 onwards. So this means that ships sailing into Europe will have to buy carbon permits for the CO2 emissions and maybe the CH4 emissions that are methane slip emissions. This seems not to be concluded yet. But in case of CH4 emissions this really makes our megaships incredibly attractive in the market. So the cargo owners will have to then buy carbon permits. And if you have been paying attention to carbon market in Europe, it has been on up here. So the carbon prices in Europe are incredibly expensive at around EUR 90 per tonne. So then you have to -- and this will then, of course, significantly improve the competitiveness of our ships, which are consuming, as I mentioned, about 60% less fuel than a steam ship both because we have a more efficient engine, but also because we can have a parcel size, which is about 30% bigger. So we are looking positively towards implementation of this, but there are still some rules that are not clear, and especially in relation to CH4 emissions because if you are adding CH4 emissions, it's a big thing. And the first is the question you have to ask yourself, if you are adding CH4 emission, what kind of multiplier will you add? If you -- methane emissions don't last long in the atmosphere, but they are very potent. So on a 20-year cycle, a CH4 emission is about 85x worse than CO2. On a -- since methane -- this is broken down in the atmosphere much quicker than CO2, on a 100-year cycle, they are about 28x worse than CO2. So then first, so what will the factor EU applies here? B, will it be 85 or 25 or 28 or some other random factors. So -- but still, it means that if you have to pay for the CH4 emission -- that will be very expensive. And it will certainly favor trading efficient ships into the European carbon trading emission sold. So let's see when we get all the details. But in general, we think it's a competitive advantage for us.

[Knut Traaholt]

Then we have 3 questions on the use of proceeds and our cash balance prepared for opportunities. What our priorities face newbuilding orders, fleet expansion or consolidation?

[Oystein M. Kalleklev, Chief Executive Officer]

Yes. I think I already touched upon newbuilding orders. We are -- our main shareholder, John Fredriksen, he's been in this shipping game now for 60 years. So of course, he have seen more cycles than most, if any. So of course, shipping moves in cycle, so more swift bankers might tell you differently, this time it's different, but they do. And this also reflects newbuilding prices. And they are pretty elevated now and given the backlog the yards have and the price pressure on inflation and such, we think they will stay elevated. So we are not going to rush to the yards or the new ships. We're going to focus on the ships we have. We have some ships coming open the next couple of years. I mentioned Rainbow and Amber, Enterprise. And we think we are well positioned to lock them in on attractive rates. And as I mentioned, term rates are holding up very well. So our focus is on existing fees. .So why are we then adding so much liquidity to our balance sheet. It's pretty simple. Credit terms for good top-tier customers like us are very good these days. I haven't seen as good financing markets since 2014 just before the oil price slump. And before that, I saw it back in 2007 when -- before the financial crisis hit, banks were handing out money everywhere. So we, as a very good client can access cheap capital at good terms, we are now pushing out maturities. We're adding flexibility with revolvers which means that we can have access to a lot of liquidity without having to draw the debt and pay the full interest expenses of the credit commitments. So this enabled us some financial flexibility and financial freedom and it also enabled us to continue to pay very good dividends even though our earnings is a bit disappointing in Q1. So it's more about having ability also to tap the market when the credit markets are good. We do see that the Fed is tightening the policy, both in terms of interest rate and quantitive easing. So if you look at the most history in terms of recessions and contractions in stock markets is driven by Fed policies. So we think it's smart to take some money when it's available. And as I mentioned, we don't need to pay for it unless we use it. The commitment fee on the revolver is very attractive. So we keep it in spare. And we think it's a good insurance premium, and it gives us some strategic ability to also pursue some opportunities if they were to arise. But that said, we are not planning to use this as a credit card to go to the yards.

[Knut Traaholt]

There's a question on [ my ] kind of mix of fuels as the fleet is currently using?

[Oystein M. Kalleklev, Chief Executive Officer]

Mix of fuel. Of course, it's compliant fuel. I would say, of course -- okay, let's just do the basics. So when we are taking LNG cargo, that cargo is like minus 162 degrees or 260 Fahrenheit, minus 260 Fahrenheit. So of course, our ship is a thermos with the propeller. Thermos are not perfect. They are close to perfect now or at least economically perfect because our boiler [ fate ] is much less than it used to be in the past. So we have -- we use this boil-off from the cargo tanks to fuel our ships with LNG. And then you use some pilot fuel typically marine diesel oil or marine gas oil. In the -- recently with the elevated LNG prices, which have been trading at big premiums to oil, even though oil prices have been high. We have seen some more heel-out being done by charters where, actually, you are not retaining part of the cargoes to use to cool down the tanks and use for fuel, you are heeling them out entirely and then rather burning typically marine diesel oil or marine gas oil. So I would say mostly it's LNG. When you have periods where LNG prices are elevated, it could also be some compliant fuel. .

[Knut Traaholt]

We round up with the 2 last questions. And one is guiding for the cash breakeven level for 2022. And the second part of it, is it possible to switch into more fixed rate contract arrangements?

[Oystein M. Kalleklev, Chief Executive Officer]

Okay. Let's do the fixed rate contracts. We did 8 or 9 fixed rate time charters last year. We think it will be 9 because we do expect Cheniere to take the fifth vessel when you look at what the term rates are being quoted today. So I think we already shifted a lot of our revenue base to fixed rate contracts. This has mostly been driven by the fact we have been optimistic on the spot market. Back in 2019 and 2020 when the spot market was not that good, we elected to do variable time charters and short-term time charter and spot in order to have exposure to the market because we thought it was going to improve. And then when we saw the improvement materializing during last year, we elected to fix a big chunk of our revenues to fixed rate contracts. Whether we will do it again for the remaining ships really depends on what we think we can achieve. So we like to keep some exposure to the spot market, but we will see. We do expect most of -- as we also shown in the graph where most of our revenues are now fixed higher -- might improve might increase more, but really depends on the terms on the table. And then the other the question was -- about our cash breakeven, yes. Okay. We guided -- I believe when we presented a year ago, we guided $45,300 for 2021, and we delivered below that at $44,000, even though COVID-19 related OpEx expenses were $600 per day, which was a bit higher than expected. So -- but of course, LIBOR stayed at more or less 0 during 2021. So interest expenses were very favorable. I think if you look at 2022. I think if you are assuming at around $45,000, it should be on target. As Knut mentioned, even though we now raised $125 million to our balance sheet optimization program, we are not increasing our debt service costs. And this is driven by a couple of factors. One is that, of course, we have got very good attractive terms. Number two, we have been able to stretch some of our repayment profiles. And number three, we have structured a lot of the financing with revolving credit facilities where we don't really have to draw all the debt all the time. So there's no reason for us to sit with $200 million of cash all the time. We can repay that under the revolvers and save some interest expenses. So it seems like alchemy. You can get $125 million without increasing your financing costs. But it's really a reflection of the fact that banks are also seeing that we have really derisked the company and then they are also willing to provide us with more favorable terms. Yes? Or do you want to add something to that, Knut?

[Knut Traaholt]

No, I think you covered it well. If your questions were unanswered, we will look into it and respond to all of those who are not. If you have any further questions, you please send an e-mail to IR at flexlng.com.

[Oystein M. Kalleklev, Chief Executive Officer]

Okay. And thank you, everybody, for listening in. We will be back with Q1 numbers in May, so I hope you can join the conference then as well. Have a good day. Thanks.

[Operator]

That does conclude our conference for today. Thank you for participating. You may all disconnect. Have a nice day.