Hi, and welcome to today's FLEX LNG Webcast, where we will be presenting our Second Quarter Results, as well as discussing the latest development in the Company and in the LNG markets. As always, we will conclude with the Q&A session. If you like to ask a question in the Q&A session, you can either use the chat function in this webcast at any time, or you may alternatively send an email to ir@flexlng.com. And we will try to answer these questions at the end of the presentation. Before we start, I will remind you of the disclaimer as we will provide some forward-looking statements. We will utilize industry-specific non-GAAP measures like TCE and figures like adjusted EBITDA or adjusted net income. Additionally, there are limits to the completeness of detail that we may provide in these presentations. So we therefore recommend that you also review our earnings report for additional information. So without further ado, I hand over the floor to Oystein Kalleklev, the CEO of FLEX LNG management, who will guide you through today's presentation together with our CFO, Knut Traaholt. Go ahead, Oystein. The floor is yours.

Hi, everybody, and welcome to FLEX LNG's second quarter result presentation. We are pleased today to deliver strong numbers or revenues of $84 million with $10 million higher than in Q1 and in line with the guidance of approximately $85 million. Net income and adjusted net income came in at $44 million and $33 million, respectively, where the main difference is the gains we have recorded on our interest rate swaps. Earnings per share and adjusted earnings per share came in at $0.83 and $0.61, respectively, giving us our strong profit for the quarter. We, in June, announced three new contracts, two seven-year charters and one-time charter of ten-year with very good counterparties. This added 24 years of backlog and we now have a backlog of minimum 54 years with the new contracts adding about $750 million of new revenue backlog. With our strong earnings visibility, we are also reiterating our revenue guidance for the second half of the year. Q3 revenues are estimated to around $90 million, while we expect Q4 revenues to be somewhere in the range of $90 million to $100 million, i.e. numbers for the second half of the year will be even better than the first half. The quarterly dividend is $0.75 per share, but in this quarter, we are also adding a $0.50 special dividend. So in total, we end up at a dividend of $1.25 per share. We have recently concluded our balance sheet optimization program where we raised $137 million of cash and we are now distributing some of this cash or excess cash back to our shareholders. With our distribution in the last 12 months of $3.5 per share, this implies an attractive dividend yield of around 10%. Let's touch upon the recent contracts. As I mentioned, we added three new…

Thank you, Oystein. And let's have a look at the financial highlights for the second quarter. Revenues came in at $84 million and as mentioned, $10 million higher than the first quarter of $75 million. This equates to a time charter equivalent per day of $70,700. This is significantly higher than the second quarter of previous years and has already mentioned by Oystein, the second quarter is normally a seasonal low quarter in LNG shipping. So the higher result is explained by our fixed rate contract portfolio, where we have a higher number of vessels from fixed rate contracts. We have the two new seven-year contracts for the Amber and the Enterprise that will go from a variable higher contract to attractive fixed rate contracts. So the seasonality effect in the coming quarters and the coming second quarters will be significantly lower. If you look at the operating expenses, they are at par with the first quarter and the OpEx per day is at about $13,000 per day, which is at the guided level we have previously announced. If you look at the interest rate expenses, they are also at par and that's partly explained by our interest rate hedging portfolio, which we see on the second line, which is a gain on derivatives of $14 million for the quarter on top of the $32 million for last quarter. I will come back on more details on the derivative portfolio on the next slides. So that comes into the net income of $44 million or $0.83 per share, and adjusted net income of $33 million or adjusted EPS per share of $0.61. If we look at the balance sheet that remains robust and clean, we have 13 state-of-the-art LNG vessels with an average rate of 2.6 years at the quarter…

Thank you, Knut. We are certainly being ahead of the curve compared to the Governors of Federal Reserve. We started rolling about inflation with all this fiscal stimulus and have entered into our very good portfolio of interest rate hedges, which have so far this year gained $46 million, so good job on those swaps. So let's talk a bit about the market. Global LNG volumes is up about 5% in the first seven months of 2022. As in the past, most of this LNG export growth is driven by U.S. U.S. is contributing about half of the growth in this first seven months of the year with 6 million tons additional exports. Russia, despite all the sanctions for Russia, Russia is still increasing its LNG exports particularly from Yamal and of course, there are really no sanction on Russian gas, so the Russian gas will continue to probably go. And as we've seen on the oil side, Russians have been able to offload some of the volumes to Asian buyers, if the European buyers are not interested. The older bracket here is mostly Australia and Malaysia, which have added about half of these 4 million tons. And that brings us up to 232 million tons of exports in the seven first month of the year. More interestingly is on the import side where Europe has been gobbling up LNG spot cargos on an unprecedented level. So far this year, about two out of three U.S. LNG cargos have ended up in Europe compared to one in three last year. In some sense you could say Europe has been lucky because the cool down in the Chinese economy driven by COVID lockdowns have resulted in lower demand from China, and Chinese imports this year is down by more than 20%.…

Okay. Thank you, everybody. I hope you enjoyed the presentation. We are now going to do some of the chat questions, so Knut, maybe you could start.

Yes, and thank you all for the questions. I think we can start off with the question from Omar Nokta from Jefferies. So we now have the sizable revenue backlog and the highest visibility since the company was created. So what's next for FLEX? Are you happy to continue operating with your existing market footprint or do you see opportunities for expansion?

That's a good question. Thank you, Omar. Of course, we are mostly driven by what is good for our shareholders. Of course, I think we can easily scale our company for a size, which is at least doubled easily, but kind of investing in ships now at the price, which we just shown ahead of around 200 – close to $250 million per ship. Ships are due for delivery in 2027. And if we're then spending $270 million of cash on – now $250 million of cash, and that cash will be tied up until 2027. We don't really see it as a very attractive investment choice given also the rather large order book. So we rather prefer sending some of the money back to all investors. And special dividends, energy prices here in Europe are sky high. So maybe our special dividend will be a good timing for that today. Of course, that is organical, we are also open for consolidation. I think we have a very good stock. The stock is the biggest market cap of any LNG shipping company in the world is fairly liquid, both in Oslo and New York. So of course, we could be open for consolidation where we are rather kind of acquiring ships to the issuance of new stocks to those people who have maybe private ships. So we are flexible in nature. We are looking at opportunities. But if we are to grow, it has to be accretive. We like the dividend. So if we are doing something, we also have to make sure it's good for existing shareholders. We're not going to pursue growth just to grow our fleet and build a bigger empire. We're very happy with the status today, and we can certainly continue just operating with the existing fleet if we deem that to be more effective than going.

Yes. And a follow-up from Omar on demand side of it. If we've been approached by the U.S. LNG export projects, the fast track that due to come on stream in the second half of the decade, any been approached either for existing or newbuildings?

Of course, we are in constant dialogue with a lot of the charters. We have a lot of repeating customers. For the fast track project, we don't really have any ships available. Fast track, as I mentioned earlier, ships available is the middle of 2024. There are certain option sales, so the first fully open ship is middle of 2026. So we are focusing on those ships, seeing if there are opportunities to even add duration to existing contacts like we just did with Amber, Enterprise and Rainbow because we find the term rates quite compelling and they create a good value for us looking in that cash flow.

And then his final questions, I can take, it's on the balance sheet optimization program Phase II. If the $100 million plan unlocking of cash in addition to the cash you have would raise the financing, would raise from the financing of unencumbered vessel. So just specifying that, Q2 we had cash balance of $284 million done into Q3. We bought back the Enterprise, so she is unencumbered now. Once we refinance her, if you take the – she was bought back at $137 million, and then we refinanced her again with $150 million. So the $13 million there is included in the $100 million.

Yes. And also maybe worth mentioning because we had this accordion feature on the $375 million loan where we could add our fourth ship. So what we were considering was to add Enterprise to that facility, increasing it to $500 million. But what we can see now with this new contact for Enterprise, we can finance even better, $150 million rather than $125 million and lower margin as well based on a long-term contract. So we are therefore optimizing and not utilizing that accordion feature.

So that leads into similar questions regarding our cash balance and our capital allocation strategy going forward. So maybe you can say what is our capital allocation going forward and what will we – how will we use the cash balance?

Yes. We get this question quite a lot, how to spend it basically. What we see is that the last 18 months, we are basically going from 100% spot exposed. Until April last year, all the ships were either on index or short-term TC. So with kind of the fixed signal of 12 ships, as I shown in one of the slides, we have really taken down the credit risk and improved our credit profile. This enabled us to tap into very attractive debt, both in terms of leverage, margins, duration and also putting in revolver facilities where the cost of having access to this cash is very low. For example, there isn't $375 million facility, $250 million of that is structured as a revolver, which means the cost of having that credit line is only 0.7% per year. And if you've been in shipping for a while, which we have been, you know the optionality of having cash is huge in shipping because there's always something happening. So that's why we are now utilizing our strong balance sheet and credit profile to raise ship debt. And then we are structuring in a way that it doesn't really cost us a lot of money to carry this debt, but where we are then having the ability to draw credit lines on quick notice. For example, if we find some good opportunities and in this instance for this quarter, we have also sent back some of the excess cash to our shareholders through our special dividend. So capital allocation is basically we have a fleet today. We will only grow if it's accretive for our shareholders and we will focus on paying very healthy, good dividends for our shareholders.

And that leads into a couple of question regarding our dividend. So can you give any guidance on future extraordinary dividends or alternative usage of excess cash?

Yes. Okay. We kind of made a decision last year when we had contracted out nine ships in that period from April to November. We're taken on the risk that we hiked our dividend to $0.75 on a quarterly basis equating to $3 a year, which we found like attractive long-term sustainable dividend. However, as we have gone through the balance sheet optimization, for reasons I've explained, we have ended up with a lot of cash. So that's why we are sending back a special dividend. We are not going to guarantee any special dividend. That's why we're calling it a special dividend, but from time-to-time, if we do see that we have excess cash, we might send it back. This will depend on a couple of things. It'll depend now on finalizing the Phase II of the balance sheet optimization, where we already started with this $150 million loan which Knut mentioned, it'll depend a bit on market condition. Are we continuing to recontract ships on longer duration? And then also kind of the financial markets as well. Actually right now with this kind of strong position, we don't mind volatile financial market because that can create opportunities for us. So we are not going to guarantee special dividends, but you can assume that we will always be shareholder friendly. We are also invested in this company and we also like dividends. So we will continue paying very healthy dividends, special dividends will happen when for more on, on off occasions I would say.

Okay. And then to round up on the questions on the cash, there's a question on our working capital requirement. I think we can say that we have financial covenants relating to our cash balance. The trigger now is 5% of the net interest bearing debt. So it's about $75 million. And we have previously guided that we have sort of a management comfort level around $100 million?

Yes. And also just on the working capital, worth mentioning working capital in LNG shipping is negative. So it's a bit different from the tanker business and the bulk business. Tanker and bulk business, you do voyage charters. So you get paid when you're discharging your cargo. On LNG all the contracts are time charter. This means we get paid in advance. So our working capital requirement is actually negative because we always get paid early and we pay our bills later on. So working capital is not really something we are required to hold. We are financed by our charters. So working capital then only relates to the kind of the cash covenants imposed by the banks.

Okay. It leads over to another questions regarding newbuildings and newbuilding orders. So how is your risk reward assessment of ordering a newbuilding at the current elevated prices? Can the current charter rates defend the investment?

Yes. It's a good question. We have shied away from it. Maybe that's well known when we see prices approaching 250, maybe we should have order at 220. It’s really gone off very quickly. It's driven by the commodity prices, labor prices and the fact that the yards are very much busy these days, also with container orders and LNG orders. And this is pushing up the yard prices, even though the yard prices are going up. The yards are not really making a lot of money. So the margins are a fairly thin here. So we think today it's hard to defend ordering ships that around 250 for delivery in 2027. And that's why we are rather focused on our existing ships, trying to extend duration on those. And we have found that to be more attractive.

We have another question, some more of the operations and how is the Ukraine crisis impacting supply and demand and your tanker traffic?

Okay. And is not our export of LNG. No LNG is exported in that region where you have a conflict today. The Russian, this is mostly affecting Russian pipeline exports to Europe where you have a tug of war between Russia and Europe, where Russia is holding back volumes, finding excuses to halt it. And that is of course getting a lot of demand for LNG, not only in Europe, but worldwide. On the LNG side in Russia, you basically have two export regions, it's Yamal, the Arctic where you have Yamal and Arctic LNG-2, and then circle in on the east side of Russia. So the direct effects on LNG shipping, does not really any direct effect, it's indirect to the shutdown of Russian pipeline flows, the most – okay, that's commercial. If you think from the operations view, there is one direct consequence, and that is all the Russian [sea fellows], which is finding it hard to find employment today because of the sanctions, we are not able to pay Russian sea fellow. So you have a lot of Russian sea fellows who are out of job because of this conflict. So that's very unfortunate and it makes recruiting harder.

And then a final question a bit on the future, but our LNG ships able to transport hydrogen in five years this maybe needed?

Yes. I think you have to wait a lot longer than five years, but the simple question is no. We transport our very cold cargo, it's LNG minus 162 degrees, or minus 265 and high. If you're going to go to hydrogen, you have to be a lot colder. Liquid hydrogen is minus 253 degrees. So it's 90 degrees colder. It's only 20 degrees from zero Kelvin, the absolute coldest you can go in the universe. So this would require a totally different ship. One thing is of course, that temperature and other factor is that hydrogen is the smallest molecule in the universe. So these molecule could easily escape kind of piping the cargo containment system and hydrogen is extremely flammable. So this put some totally different aspect on the safety. There's never really been any accident with LNG ship, but for hydrogen, it's a much more complex cargo to transport temperature-wise, leakages, flammability and also the fact that hydrogen is not really dense. So you need – in order to transport the same amount of energy, you need a lot more ships. So no hydrogen is not something we are planning to transport on our ships. Whether it's efficient, most of hydrogen is produced from natural gas. Natural gas prices are high. That is also driving off hydrogen prices because basically hydrogen is converting natural gas to hydrogen in a very inefficient process. You could also make it the green hydrogen other than blue hydrogen. Then you would need a lot of electricity in inefficient process making hydrogen through The Haber-Bosch process. So electrolysis and Haber-Bosch is for ammonia, sorry. But if you're doing the electrolysis process, then you know – if you look at electricity prices here in Europe, this is not really viable today. One of the other ways of transporting hydrogen, which is slightly easier, is as I mentioned, ammonia. So basically you're making hydrogen, you are dirtying the hydrogen with nitrogen to get ammonia, which is easier to transport, but which has some certain drawbacks, it has drawbacks in terms of toxicity. So it's a little – it's toxic in terms of corrosion. And actually even though it's explosive, it's hard to ignite, so you need a lot of pilot fuel. So we will stick to LNG, I think, cleaning up LNG would rather involve carbon capture systems. I think that's the most viable path forward.

Okay. Then with the high LNG prices, are FLEX vessels fueled by LNG?

Yes. That's a very good question. Yes, almost all the time. Once we pick up a cargo, we take this super cool cargo on board and keeping something at minus 162 centigrade is quite difficult. We have a boil off of around 007% on our ships. So it means that every day you're losing 007% of the cargo in boil off, but we're not losing it. We are using it as propulsion. We are burning this LNG natural gas and fueling the ship. So it's actually – you're getting into area. If you had a lower boil off, you would have to force it out. Then you come to the discharge port, then you have to make a decision. What you usually do is you keep some of the cargo on board, which we call the [hill], because then you can keep the cargo tanks cold. You can't load LNG into a ship unless it's minus 130 degrees in the cargo tank. So if you are stripping out all the LNG, that – first of all that will take a lot of time. So the import terminals are already congested today. So if all the ships are going to heal out, they are going to get even bigger bottlenecks. So – and especially in Europe, you don't really have that option today. But let's say you are doing it, let's say you're healing out because the gas price is so high and you're burning very low sulfur oil on your ballast – that created another problem. And that's the bottleneck on the export plant, because if you are arriving at the export plant with your cargo tank warm, you need to cool them down. So you have to do what we call a gas up or cool down, or a cool down where you have to add LNG in small amounts, spray it in the cargo tanks, get the temperature down to minus 130 before you can load LNG. And this again, takes a lot of time and [indiscernible] space on these terminals are limited. So it's not very often that actually people heal out. Even though in economics, it sounds very good. So for most of the time laden and ballast, we burn LNG, yes.

And then I think we can wrap up the two final questions in one. It's a big topic. What will happen to the steamships and how will our vessels be impacted by EEXI and the CII regulations?

Yes. Okay, we have been talking about this for – at least I have been talking about this for five years as the big business opportunity for us because we have the modern ships. The steamships are very inefficient. In all other shipping segments, steamships propulsion has gone away for a long time. So the new decarbonization rules are going to push these ships out of the market, but also the highest LNG prices. It's not economically to run these ships anymore. And less ships in the market means usually supply and demand, higher rates for existing ships and we will benefit there, as I've also shown with this graph of the term rates given the newbuilding prices. So we are fully compliance. As I mentioned, our ships are on 60% more efficient than the steamships. So we are flying kind of this EEXI and CII requirement with flying colors. These are the most efficient ships in the market.

Okay. That concludes the question. So thank you for watching and…

Yes. I hope you like the new format. We try to make it a bit more viewable and we will be back in November on the same format. So hope to see you again then. Thank you very much for staying with us.

Thank you.