Ladies and gentlemen, thank you for standing by, and welcome to the Flex LNG Q1 2020 earnings presentation and investor day conference call. At this time, all participants are in a listen only. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I must advise you that this conference is being recorded today, Thursday, 28th of May 2020. I'd now like to hand the conference over to your first speaker today, Oystein Kalleklev. Thank you. Please go ahead.

Thank you, Marian. Welcome to the 2020 first-quarter results presentation for Flex LNG. My name is Oystein Kalleklev, and I'm the CEO of Flex LNG management. Together with our CFO, Harald Gurvin, I will guide you through today's presentation. A replay of the webcast will also be available@flexlng.com. Flex LNG is a shipping company focused on the growing market for seaborne transportation of liquefied natural gas, LNG, and we are listed both at Oslo and New York Stock Exchange under the ticker FLNG. So, first, a disclaimer with regards to, among other, forward-looking statements 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 and our annual report, which are all available at our website. So, let's summarize the highlights today. First of all, I am pleased to say that we delivered time charter equivalent or TCE earnings for our ships at approximately $68,000 per day, which is in line with our guidance of close to $70,000 per day. Given the seasonal softening of the market in first quarter and the outbreak of the novel coronavirus, we are satisfied with the trading results for the quarter. TCE of $68,000 per day translates into revenues and adjusted EBITDA of 38.2 and 27.8 million for the quarter. During the first quarter, interest rate levels around the world plummeted due to the adverse economic consequences of the COVID-19 pandemic. This resulted in us booking a noncash unrealized mark-to-market loss of approximately 22 million for our portfolio of interest rate swaps. Our portfolio of swaps at the end of the quarter consisted of $485 million hedged for around five years at about 1.5% fixed interest rate. We have so far hedged the interest rate risk for about 50%…

Thank you, Oystein. As mentioned, we are pleased to announce that we have agreed two new financings, totaling 281 million post quarter end, and adjust the range financing for all seven new buildings under construction. The first facility is 125 million term loan and a revolving credit facility for the financing of Flex Volunteer, which is scheduled for delivery in the first-quarter 2021. The five-year facility has a repayment profile of 20 years, in line with our other bank facilities and will be split into 100 million term loan and a 25 million revolving facility. We have already entered into interest rate swaps for the full amount of the facility, giving an attractive all-in pricing, including margin of 3.3% per annum. The second financing is a 156 million, 10-year sale and leaseback transaction with an Asian-based leasing house for the new building Flex Amber, which is scheduled for delivery in the third-quarter 2020. The transaction will be priced at LIBOR plus a margin of 3.2% per annum and has an 18-year repayment profile. We will have annual repurchase options commencing on the first anniversary and there is a purchase obligation at the end of the 10-year lease period of 69.5 million. Flex Amber is included under the 629 million ECA facility entered into in February this year. And we intend to utilize the swap option under this facility to replace Flex Amber with the sister vessel Flex Vigilant, which is the final of our new building scheduled for delivery in the second-quarter 2021. Both financing remains subject to final documentation and customary closing additions and are expected to be drawn upon delivery of the relevant vessels from the shipyard. We have been active on the financing side in the last two years, arranging a total of 1.7 billion of attractive…

Thanks a lot. So, let's start on Slide 11 by doing a quick recap and a review of the spot market for LNG shipping. In line with the seasonal pattern, as mentioned, the market has been softening in the first quarter as we are coming out of the peak winter season. As we mentioned in our investor day presentation back in February, we have this winter experience yet again, mild weather with the highest ever winter temperature measured in the Northern Hemisphere, which have affected gas adversely this winter as most gas is consumed in the Northern Hemisphere. In general, we had positive news surrounding the signing of the Phase 1 trade agreement between US and China and US LNG shipments to China has resumed. However, the headlines quickly shifted to the coronavirus outbreak in Wuhan with associated pump shutdowns in China during February. The February shutdowns in China resulted in poor sentiment in both the freight and product market with JKM hitting a low of $2.7 in February. However, market turned more positive in March when China started to resume normal import levels again, and JKM bounced back 30% to $3.5 by mid-March. For the freight market, this means that we went from one way economics in February to full round trip economics in March, meaning the ship owners get paid both the laden and the ballast leg, giving TCE in line with headline TC rates. But as we all know from experience today, the coronavirus went to viral and became a global pandemic, resulting in shutdowns of all major economies. This have resulted in unprecedented low gas prices again, with European prices down to $1 while JKM have cash back to $2, which is a historically low spread toward the Henry Hub Index in the US and, thus,…

[Operator instructions] Your first question comes from the line of Gregory Lewis from BTIG. Please ask your question.

Yes. Thank you, and good afternoon.

Good afternoon, Greg, and glad to have you coming up with the first question, as we have done in the past.

You're too kind. Oystein, I wanted to touch a little bit on some comments you made about the potential for LNG storage in the back half of this year. We've seen and we've been hearing about the, I guess, some declines of some of the spot cargoes that are coming out of the US and really just kind of want to understand if you can provide a little bit of color, what we think is going to drive that storage just as -- on vessels. Clearly, there's not a lot of onshore storage, if any, in Asia. But that being said, it seems like some of the end users are turning away cargoes or refusing -- or delaying refusing to take them. So, just kind of wondering, is there an economic arbitrage that could be driving that in the back half of the year? Or is it really that we can't really see much shut-ins at this point? And therefore, it just is going to have to go somewhere? And just any kind of color around that, I think, would be helpful.

Yeah. Thanks. I think most people have been focused on the shut-ins of cargoes in the US And of course that's because, really, basically the only place where the buyers have the optionality of shutting in and not taking delivery of cargoes for the vast majority of LNG SPAs, it's a take-or-pay. Regardless of the price, you have to take the volume. The only option you might have is to reduce the volume slightly for a period but then you have to take higher volumes later. But we actually -- we've seen shut-ins of volumes in Egypt. Egypt was resuming exports have now been shut down. We have seen Algeria doing the same because of the low price pitches. And this super expensive FLNG unit for Shell been down since February because of COVID-19issues. So, if you're thinking about the US cargoes, of course, we have massive cancellations in June 2030 cargoes and maybe 30, 40 cargoes in July. They typically have two-months' notice to do this. And if they cancel, they have to pay their tolling fee regardless. So, it's more about what kind of price do you have. So, right now with JKM, close to Henry Hub, of course, it doesn't really make sense to take the cargo and that's why you're seeing the massive cancellations. Even if you need the cargo, it's better to cancel the cargo and buy a cargo in the market. So, what we think will drive, of course, floating storage and more volumes is, of course, the price. The price needs to get up. The price is at unprecedented low levels. But if you look at the forward market, prices are rebounding, and nobody expect the prices to stay here for a very long period of time. And we've already seen the oil…

OK. OK. Great. And then, just another one for me on the finances. Clearly, you guys had a successful quarter or last few months in lining up some financings. I guess it's kind of a two-part question. But as I look at -- and realizing that these are all -- still have customary closing conditions to go forward. But with all of the financings now lined up for the new builds, just running some quick math, the remaining equity contribution for these -- for the new build fleet is de minimis, looking on maybe 20, $30 million, does that provide an opportunity for Flex? And just given the outlook is challenging for the next couple of years, I mean, you kind of laid out oncoming capacity. Does this provide maybe another opportunity for Flex the kind of step on the throttle a little bit and grow the fleet? I mean, we're hearing that there are potentially some new build vessels that are potentially going to be for sale here in the coming quarters. Is there an opportunity for the company to kind of take advantage of maybe this pause in the cycle to kind of build out its fleet, just given the success you guys have had and kind of financing alpha fleet?

I think for everybody who knows the kind of the gate of John Fredriksen system, they would know that we tend to be opportunistic. We're very pleased to have kind of the financings in place. We announced the ECA financing in our third-quarter presentation end of November. And then, we also then had the subject of final documentation. The final documentation was ready by February, and we announced the kind of the signing of the loan agreement in February. But just as we signed that and we had the Q4 numbers in February, people were asking me immediately, what are you going to do with the 2021 ships? And we just financed five ships for 2020. And people have been so worried about the remaining CapEx, even though it's been very low, $252 million. So, for those 2021 ships. So, we've just been fast-tracking that financing. And when you're fast-tracking financing in a period of time where the financing market is more or less shut for almost everybody. You see even the big IG investment-grade companies going to the bond market, people are growing credit lines. So, I think we have demonstrated a very good track record of raising attractive financing. We have banks that believe in us, banks like to finance kind of the new and good assets and especially with the management, which have, I think, demonstrated our ability to charter these ships out at premium rates. And then, we get into the question how much money should you have. Of course, I'm very comfortable now. We have 121 million of cash. None of the cash is restricted cash because we haven't signed any bonds that have calls on FX. We don't have any swaps calling on restricted cash flow. That's free cash. And then, with 910 secured…

OK. Perfect take. Thank you very much for the time.

Thanks, Greg.

All right. Thank you. And the next question comes from the line of J. Mintzmyer from Value Investor's Edge. Please ask your question.

Good afternoon, Oystein. Congratulations on a fantastic quarter.

Hey, J. Good to hear from you again. How's Vegas?

Well, we're recovering. Doing what we can. But yes, considering the tough markets, it's good to see that you were able to get the 68,000 TCE.As I'm looking at your presentation, comparing it to last quarter, I noticed you don't have the fleet kind of delivery chart. I know last quarter, you said the fleet might actually be delivering early ahead of schedule. Is that no longer the case? Are we back kind of to the normal trajectory or maybe even some delays on that side?

I think most of the ships, it's kind of -- we had more like option to take out ships earlier. But right now, as the market is, we don't really want to utilize the option to take ships out early. So, the next ship to be delivered will be Flex Aurora more or less on schedule. And then, of course, Flex Artemis will be delivered as scheduled in August, and she will enter a five-year, or minimum five-year contract with the Gunvor. So, we don't really expect major changes on the schedule, and that's why we are not really including it either.

Understandable, so back to kind of the regular schedule. On the Flex Artemis with the variable time charter to Gunvor, can you talk through that a little bit? Is there some sort of a floor structure and then like a profit sharing? Or how does that work?

Yeah. It's a good question. When we wrote the press release for that time charter, we agreed on the kind of the wording because if you are a trader, you typically, you are bidding for cargoes, so FOB cargoes. And the leasing -- last thing you want is for your competitors to be able to kind of calculate your freight cost because right now, freight cost is a very substantial portion of the cargo economics. And that's why we are not sharing too much details about it because it has adverse competitive implication for our customer, which is our utmost priority. What I can say, we have had two ships on index through the last year or so. And as you can see from our TCE numbers, they are kind of supporting our premium rates. So, of course, you get100% utilization. You get to capture the headline rates. Of course, nobody really will pay you the headline rate 100% because then they can tap into the spot market. Of course, there are sometimes where the spot market doesn't have any ships available, which happened October last year. During October last year, it was impossible to get any ships because the market was sold out. But I would say it correlates very well with the headline rates. Typically, you -- that's not one fit all kind of structure. So, some contracts you could typically have without any ceiling, but without any floor. Some have with floor with profit split. Some have with floor and ceiling. So, they tend to vary. But I think they gave us a good exposure to the headline rates. And while also protecting us on the downside, both with utilization and for some of them also with the floor.

That makes sense. It sounds like we can model that as a normal sort of MEGI market rate with full utilization then, OK. Looking forward to your cash demands, very impressed with your refinancing for 2021. I know we talked about that last time about getting those new builds financed. I don't see any really needs for cash until -- really until 2024, right? I mean you have a very clear debt maturity profile. Large cash balance and your shares trade at an enormous discount to NAV, right? I mean you can debate the NAV, right, whether or not you use the lower current market values or more of a replacement value but maybe somewhere between $12.15 or $12.16 per share, right? And your shares are like $4. So, how do you look at -- is there any method you can take to correct that gap? I know you want to keep a strong cash balance. Is there any sort of appetite to a share repurchase or a tender offer or anything that could help close some of that gap?

I think I had a call with you early March after our investor day and we did this conference call, and you were asking me a lot to what about the'21 new buildings. And I told you, okay, we are fast-tracking those financing, and I'm happy to say we were able to fast-track those in time for our report today. So, that gives us a very comfortable cash position, as you see. Even after taking delivery of those ship and generating zero cash flow from operations, you would have $100 million of cash, which is, of course, a lot more than we need. When it comes to what to do with the cash and of course, we don't have any maturity, as you said before '24. I think it's more to -- when we have such a depressing stock price. We just want to give people a comfort. If you invest in us, it's not like we are going to the market to raise any money because we already have the money. And if you are -- in 2018, kind of the investor in our company were more, I would say, growth investors. In 2019, they were value investors. And today, it's probably more deep value investors. And if you are a deep value investors, the last thing you want to do is that the company have to raise money because then your kind of position is kind of diluted. So, we just keep that in mind that the people investing in the company including our majority shareholder, John Fredriksen, with a 45% stake and management as well, we want to make sure that we can thrive in this market. And if opportunities arise, could be something to look at. There are also resales opportunities, and I think there will be more resale opportunities. Headwinds is floating a story today with some prices. I think it was said around 170 million for resale. Of course, that's a ship without any contract, without any software, without any financing. Four fleet, we have 13 new ships with financing attached, and our software in terms of management, both technical and commercially. So, our ships are much more worth than those resale. But still, the stock market is putting a discount to that. So, for us, of course, the best investment we can do is buying back the stock. But on the other hand, we also want to make sure that investors are comfortable with our financial situation. And the best way to do that is to have financing secured and a lot of cash.

Yeah. Definitely, I understand it's a challenging balance. And you beat me to my follow-up because I was going to ask about the resale. I heard there is a 2022 vessel for something like 170 million. So, very interesting. As an investor, we would hope that you would look at share repurchases ahead of vessels, right, if you're trading at a huge discount but we trust you to make the right choices. Thanks again for the questions and an excellent quarter.

Thank you, J. Good to hear from you again.

All right. Thank you. There are no further questions at this time. Please continue.

OK. That's good. And I think we are adjourned. Everything is very clear. I wish you a continued good day. And we are back with our second quarter, sometime in August. So, I wish you a pleasant day and a good weekend tomorrow. Thank you.

Thank you. That does conclude conference for today. Thank you for all participants. You may all disconnect.