John Fredriksen’s Flex LNG is to concentrate on securing employment for its 13-ship fleet rather than moving to extend it with any additional newbuildings.
Asked about a results briefing about the company’s priorities, chief executive Oystein Kalleklev referenced Fredriksen, pointing out that he has been “in this game” for 60 years and witnessed more cycles than many.
The CEO said LNG newbuilding prices are “pretty elevated” and will likely stay that way.
He said Flex’s focus remains on its existing fleet.
The company fixed eight of its 13 ships on fixed rate, three to five-year time-charters in 2021 with Cheniere Energy expected to make this nine by taking an optional vessel.
Kalleklev said Flex has some ships coming open in the next couple of years but has not yet decided whether to employ them in the spot or term markets. He urged company watchers to “stay tuned”.
The company has opted to keep its 174,000-cbm Flex Volunteer (built 2021) trading spot and has three ships on variable hire market-linked rates.
The boss said it was a “smart move” to keep Flex Volunteer spot in late 2021 but the company has “no high expectations” for earnings from this ship in the current quarter when rates have been weak
Kalleklev said Flex does expect its first quarter revenue will be slightly down on levels seen on those in 2021, when the market was booming and its fleet had more spot exposure.
But he said Flex is expecting higher returns in the second and third quarters while it is “too early to tell” on the final three months of this year.
Speaking about the company’s balance sheet optimisation moves, Flex chief financial officer Knut Traaholt said the two new financings for a total of $695m for five ships with an option on a sixth vessel that were announced with the company’s results on Wednesday.
Traaholt said these will free up liquidity, reducing the cost of debt and maintain the company’s cash-breakeven rates.
They are expected to be closed during the second quarter.
Kalleklev explained that Flex is adding liquidity because the credit terms are good — the best he has seen since 2014.
“We think it is smart to take some money when it is available,” he said.
Even though Flex is raising cash it is not increasing its debt service costs, the CEO said. It seems like “alchemy”, he added, but is really a reflection of Flex de-risking the company and banks being willing to provide more favourable terms.
But he added: “We are not planning to use this as a credit card to go to the yards.
“It gives us some strategic ability to pursue some opportunities if they arise.”
Kalleklev said thinks the LNG carrier market will rebalance this year with 25 million tonnes of LNG due onstream and half the newbuilding deliveries due over those in 2021.
Flex estimates the US and Australia will be neck-and-neck on 82 mt each slightly ahead of Qatar. “We are in for a real LNG nail-biter this year,” he said, as producers push production to capture the current high LNG prices. “It will for sure be a thriller.”
