FLEX LNG Ltd. (NYSE:FLNG) Q4 2022 Earnings Call Transcript

FLEX LNG Ltd. (NYSE:FLNG) Q4 2022 Earnings Call Transcript February 14, 2023

Oystein Kalleklev: Hi, everybody, and welcome to fourth quarter results presentation for Flex LNG. It’s February 14, Valentine’s Day. So, I’m Oystein Kalleklev. I’m the CEO of Flex LNG Management. And will be joined by our CFO, Knut Traaholt, who will give you some more details on the numbers a bit later in the presentation. The presentation will be concluded with a Q&A session. And as you might recall, best question this round will get an original bed linen set for two people. So, I hope you can provide some questions either by sending us an email on ir@flexlng.com or just use the Q&A button in the webcast. So, before we being, just want to remind you about our disclaimer related to forward-looking statements. We do provide some non-GAAP measures and, of course, the detail level we can provide here is limited given the time.

So, with that let’s review the highlights. Revenues for the quarter came in at $98 million, in line with previous revenues guidance of $95 million to $98 million, where our numbers this quarter was boosted by our in a booming spot market. Net income and adjusted net income came in at $41 million and $55 million, respectively, where the main difference is we realized gains of $14 million on derivatives during Q4. Earnings per share and adjusted earnings per share was $780,000 and $1.02 respectively. In November last year, we announced the extension of three ships with Cheniere, where we added a minimum of 14 years of contractual backlog to an already, rather sizable backlog. Knut will tell you today that we have finalized our balance sheet optimization program.

He is presenting a refinancing of three last ships in our fleet. And altogether, the balance sheet optimization program will have released $387 million of cash. For next quarter, Q1, we expect revenues to be in the region of $90 million to $93 million as we are doing our first scheduled dry-docking of Flex Enterprise at the end of Q1. And altogether, this year we will dry-dock four of our ships. Nevertheless, we do expect revenues to increase regardless of that off-hire. Revenues are expected to be in the region of $370 million for the year driven by higher time charter equivalent earnings, where we expect average time charter equivalent earnings to be about $80,000, compared to $72,800 for 2022. Our EBITDA numbers are also expected to increase with a similar amount compared to 2022.

So, with a health backlog, a very sound financial position, we are again declaring our ordinary dividend of $0.75, but also a special dividend of $0.25, bringing the dividend per share to $1.00. And for the full-year 2022, that means dividend of $3.75, $200 million dividend. And that implies a dividend given to share price level today of around 11% yield, which should give you investors an attractive yield being invested in Flex LNG. So, let’s review our contractual backlog portfolio. As I mentioned, we did — three ships we extended in November, with Cheniere. This was Flex Endeavour, which was extended until end of 2030, added all together, 5.6 years. Flex Vigilant added 6.4 years, also bringing that to 2030. Those two ships have option to 2033.

And then the last ship we extended with Cheniere was Flex Ranger, another — the two optional year, bringing that ship until early 2027, which we think is a very attractive position to be in. This is a time where we will have a lot of new LNG coming to the market. And here, the leverage today are earliest 2027, and even into 2028. So, we are competing against much more expensive ships with current yard’s ticket price today of around $250 million. In 2027, we also have Flex Constellation fully open. This ship is firm until 2024, but the charters has the option to extend the ship up to three years, bringing it redelivered to us in Q2, 2027 at the latest. So, these are the two ships we are marketing in — for longer-term contracts today. And we are upbeat about the prospects given the term rates, as I will explain later in the presentation.

Last year, we also extended more ships. We extended Flex Rainbow for 10 years, and she just commenced her new 10-year charter in February. And we also extended Enterprise and Amber by seven years, starting July last year, until 2029. We also have some other ships in the portfolio. Flex Freedom, earliest redelivery 2027, there is a two-year option on this ship until early 2029. We also have two more chips with Cheniere, Flex Aurora, Flex Volunteer, earliest redelivery 2026; also have two-year options, bringing them to 2028 potentially. And then we have two more ships on this three plus two plus two structure, Flex Courageous and Flex Resolute, earliest redelivery 2025. But this is very likely that these ships will be extended given their contract structure.

So, we don’t expect to get these ships back before 2029. Constellation, I already covered. And Flex Artemis is the one ship we have on variable hire contract which had the boosted revenues in Q4, as I mentioned in the highlights. So, looking at our guidance in a bit more detail, you can here see our revenues and EBITDA our last couple of years as we have taken deliveries of ships in ’18, ’19, ’20, ’21 the last ships. Of course, our revenues have increased, and also the market has improved. For next year, despite, as I mentioned, dry-docking of four ships, we do expect revenues to grow by about $20 million, and similar for adjusted EBITDA. Looking at our dividend, earnings belong to our shareholders, and I think we have demonstrated that today with our $1.00 dividend, bringing it to $3.75 in total for the fiscal year 2022, which compares to earnings per share of $3.54 or adjusted earnings slightly below that at $2.83 as we had significant gains on derivatives which has been unrealized during the year.

When it comes to the decision factors for dividend, I think I have covered this in great detail in the past. But of course, it’s linked to our earnings which are strong. The market outlook, which is also strong, we have a very sizable backlog, as I just demonstrated our liquidity position. We ended up with a cash position of $332 million, and this will be further boosted by the refinancing as Knut will shortly explain. Covenants, flying with green colors, we don’t have any debt maturities before 2028. CapEx liabilities are limited to the dry-docking of the four ships we have this year, but we do expect dry-docking expenses to be at around $18 million to $20 million in total. Other consideration, I don’t want to jinx it, putting this also fully green.

So, we keep it light-green for now. And that’s kind of the highlights for our assessment of the dividend. In terms of safety and quality performance, this is something we care deeply about. We do have a lot of repeating customer coming back. And of course, they are doing so because we have very reliability uptime, as you can see here, 99.9%, 99.8%, and 100% uptime on our ships despite quite challenging operation during COVID. And regardless of that, we keep our ships and the propellers turning. Also in terms of safety, the two more relevant benchmarks are the lost time injury frequency, and the total recoverable case frequency. Here also we are measuring very favorable to the LNG data from INTERTANKO, with LTIF of 0.33, 25% lower than the industry standard, and even better when it comes to total recoverable case frequencies despite a bit uptick in that for ’22 for all parts.

So, with that, I give it to you, Knut, and you can do a review of the financial, and will come back and go through the market. Thank you.

Knut Traaholt: Thank you, Oystein, and let’s have a look at the key financial figures for the fourth quarter and 2022 full-year. 2022 was the first year where we had the full fleet available for the whole year, as we had three deliveries of new buildings in 2021. If you look at the time charter earnings per day, we achieved $82,000 in Q4, and $73,000 for the full-year. OpEx per day, slight improvement, where Q4 ended up at $13,500 per day, and for the full-year, $13,400. Moving on to the revenues, the fourth quarter delivered $98 million in revenues for the year, and reflects the higher earnings under the variable time charter for the Flex Artemis. For the full-year, we ended up at $348 million. If you look at net income and adjusted net income, $41 million for the quarter, and adjusted net income of $55 million for the quarter.

The difference here is the realized gains on termination of derivatives, and that were done in October, in 2022. Net income for the year, $188 million, and adjusted net income is $151 million for the full-year. If you look at the cash flow, cash increased by $61 million in the quarter, and we ended up with the record high cash position of $323 million. This is mainly driven by the net proceeds from financing, where we concluded the refinancing of the Flex Resolute, in December. And we — mentioned the realization of the derivative swaps which were terminated. In addition, we raised $14 million from our ATM program. And as a reminder, amortization in Q4 is slightly lower than Q1 and Q3 due to the semi-annual repayments under the ECA facility.

As we will announce later on, this ECA facility will be refinanced in full. So, for the coming quarters, amortization should be more smoothed out quarter-by-quarter. As we will highlight later on, we are also completing our refinancing program. And for Q1, we are estimated to release net proceeds of $204 million, adding to our already solid cash balance. So, for the balance sheet, it remains clean and robust. Strong cash position of the mentioned $323 million. And we have a book equity of $907 million. That gives a book equity ratio of 34%. And it should be noted that book values reflect these vessels were acquired at historically attractive prices, which is where the replacement cost is materially higher than this. Moving on to our interest rate portfolio, which is, we have had an active hedging strategy on, adding long-term swaps when the interest rate market was low.

And as we see in October, we terminated the $100 million 10-year swaps, which gave us a cash gain on $14 million. In the quarter, we also amended $100 million 10-year swap where we had unrealized gains of $15.5 million, which we used to enter into a new shorter interest rate swap of two-and-a-half year, but increasing the notional value to $181 million which was then entered into an attractive level of 0.9%. Further in January, we added another $50 million of 10-year swap, which gives us a total swap portfolio of $741 million, and we entered attractive levels, which gives us now a forecasted hedge ratio of about 54% in the coming quarters. And hedge ration has improved as we are now announcing new financing where we are increasing our RCF capacity where then on a net basis, the hedge ratio improves.

Which take us down to the balance sheet optimization program which we now announced will be finalized. With the remaining financing, we are announcing today, we will then release $387 million of cash under that program. Last quarter, we announced the financing of the enterprise has completed, and with Resolute and Amber to be completed. Today, we announced that all of these are documented. Resolute was completed in December, Amber in early February. And, Artemis is shortly due to be refinanced. All of these are documented and signed. Today, we also announced a new lease for the Flex Rainbow. It’s with an Asia-based lease provider and it’s a back-to-back financing with a 10-year contract. The Flex Rainbow was refinanced under the $375 million facility.

So, we will replace her under that financing with Flex Aurora, which was then taken out of the $629 million ECA facility. And then today, we are the balance sheet optimization program with a $290 million bank facility, of where, $150 million will structured as a bullet RCF. And with completion of the final financing, the full $629 facility will be refinanced in full. And as we also highlight here that once we now complete this, we are also pleased to see that all of our priorities from the outset has been met. We are stretching our repayment profiles. We are significantly improving our margins. This is a comparison with the on balance bank loans and lease financing in Q4 ’21. We are increasing maturity dates. We are freeing up nearly $400 million.

And we have a flexibility with the $400 million RCF for cash management and reduce the utilization during — in particular high interest rate environment. So, we are pleased and grateful for the trust and commitment we have from our banks and lease providers. And with this in Q1, all of the financing shall be completed. So, then, last quarter, we named it fortifying the balance sheet. We now rename it to fortress balance sheet. Our contract backlog gives us stable cash flow. We have now refinanced, and we are having significant cash available, and that is for cash management purposes we can use the RCF. We have a cost of 70 basis points. And all of this is gives us the commercial flexibility to continue the Flex journey. And with that, I hand it over to Oystein.

Sheila Fitzgerald/Shutterstock.com

Oystein Kalleklev: Okay. Now, let’s review the LNG product market. Product exports were up 5% last year, driven by U.S. up 9% despite the outage on Freeport which removed about 112 cargos from the market equivalent to 8 million tonnes. Freeport has been exporting cargos again this weekend. So, that will add growth of U.S. volumes. This year, Russia despite all the sanctions — sanctions don’t apply to LNG; Russian exports were 9% and 3 million tonnes in total; Malaysia also recovering, up 11%, and then, other countries up 2%, bringing the total export market for 2022 to 400 million tonnes. On the import side, we had some major shifts in trade flows given the high prices of LNG. And the economic downturn in China caused by the Zero COVID policies, imports in China was down a whopping 20% in 2022, which was a very welcome relief for European market.

European buyers have been struggling getting access to natural gas, given the curtailment of Russian flows. And European imports were up 45 million tonnes or 54% in total. Looking at the import nations, you can see how six top import gainers last year were all Europeans dominated by France, U.K., Belgium, Spain, Netherlands, and Italy. So, just like in 2019, when we also had a weak market in China, we saw the European buyers at that time buying up LNG cargoes because the price was low. This time they are buying up cargoes because of the curtailment of corrosion flows. And on the other side, here you see China, Brazil, and also some developing countries where the price of LNG has been so high that buyers in Pakistan, India, Bangladesh has been struggling to be able to pay such a high price for LNG.

And as we see here coming soon is Germany. Germany is becoming also our LNG import nation rapidly ramping up regasification capacity. Looking at storage levels, which has surprised I guess everybody, storage levels have been on the top level of historical average despite the energy crisis in Europe, this has been caused by a couple of factors, which I will come back to is the demand subversion and it’s also a mild start of the winter, which has driven up LNG inventories which is now being reduced according to the seasonal norm. So if you look at the pipeline flows from Russia, they are now down by about 90% compared to the level in 2021. In 2022, you saw our development with sliding pipeline flows from Russia, Q1, and then Q2 and then when you had the explosion on the Nord Stream pipeline, volumes fell down to very low levels in Q3, or even less in Q4 and they have been staying steady at these kinds of levels.

This means that Europe has been tapping the LNG spot market to replace Russian pipeline flows. So looking at the European gas demand, as I mentioned, demand subversion, you could say demand destruction, but we do think that the gas demand will come back. And that’s why we also using the word demand subversion with European gas consumption down 12% last year, driven by the extremely high prices we have seen, this is not all good news because the beneficiary of these high gas prices has been cold, which was up 14% in 2021 and grew another 6% in 2022. So, if you look at where we have had the demand slumps, it’s mostly about industry like ammonia producers, but also household where high prices have resulted in people consuming less and also because the winter this year has been very mild in Europe.

Looking at how Europe is adapting to less pipeline flows from Russia, it’s about building out new regasification capacity and the easiest way to ramp up capacity is through the use of , where we do see Germany, as I mentioned, Netherlands, Italy are rapidly ramping up regasification capacity in order to substitute Russian pipeline flows with LNG imports. And arbitrage, the American market Henry Hub, where you really do see fairly low prices. European and Asian markets have been up and down here. As you can see, we have now come to more reasonable levels for the LNG prices. But still the arbitrage versus Henry Hub open the Asian market is still massive, which will support further expansion of U.S. export capacity. Looking at prices going forward, we all know what the level where European and Asian prices are fairly similar, slightly higher prices in Asia.

Also the spread between pipeline gas or the TTF and the LNG price, which we call this NorthWest Europe, has also been reduced significantly. This spread between the pipeline gas prices and the LNG prices were close to $30. And it’s come down now to $1 or $2 which is a more normal market. So, going forward, it will be a tug of war for the marginal cargo. We do see more shift of flow into Asia and of course the prices of the LNG in Europe and Asia will, to some extent decide where the cargoes will be flowing. Looking at peculiar thing with the LNG market this year, we saw a rapid increase in floating storage this autumn. If you look at the August numbers, we had about 16 million tonnes of LNG on water. And this increased to a peak in the middle of November of around 21 million tonnes of LNG on ships.

So, you have more than 5 million tonnes in case in LNG on water. And this is equivalent to about 72 ships. So, that’s one of the main reasons why the freight market became incredibly tight at the end of the year, because a lot of ships were tied up on floating storage either because of congestion in Europe, but also to somewhat extent because of a contango in the gas prices in the October-November range. With LNG prices now coming down to earth, we have seen a liquidation of LNG on water 4 million tonnes less LNG on water now than on peak, which then resulted in about 56 ships equivalent, less ships with floating storage. And that also very well explains why freight market has been softening from the peak in the middle of November. So, if we look at the headline MEGI/XDF spot rates, as you can see, these rates went up to about $0.5 million a day at the peak in October, November, as we had less floating storage, they started to slide from November been sliding down to around $100,000 per day, which is still up with the good level at this time of the year, and actually now in week seven we do see a small uptick in the spot freight rates.

So, usually the spot rates tend to bottom out in week seven to 11. And then, usually following a tighter market throughout the year and here we are putting in the dotted line on the left hand, the forward assessment for freight rates, where we do see that the forward market is pricing above $200,000 of spot rates again for Q4 this year. Another thing to pay attention to is the liquidity of the spot market also varies quite a lot. On the right hand side here we do see the numbers of spot fixtures, the spot market was very liquid in 2020 into 2021, and then we saw from spring of 2021, a lot of the charters being very active in the term market pulling in ships into the portfolio and the liquidity of the spot market has been decreasing. So from a peak of above 30 fixtures amounts, we have now been down to about five fixtures amounts and most of the fixtures being done are being done by charters themselves reelecting ships out in the spot market and there’s been very few independent owners active in the Nevada illiquid spot market and less liquidity is also driving up freight rates.

Term rates however have been able to affirm the whole period. This is driven by higher building prices, we have definitely seen inflation, our new building prices as Knut mentioned, on our balance sheet, we have ships booked at the bottom of the market when prices were at around $180 million, $185 million per ship. That price today is about $250 million for delivery 2027 even into 2028. Another driver is of course, inflation has also driven up interest rates. So, in order to kind of defend social investment, you need a higher term rate and the five-year term rate has no stabilized at around $135,000 which is a pretty high level. And it’s also one of the reasons why we are pretty confident about being able to build more attractive backlog for the 2027 ships we are today marketing.

And let’s look at back to the product market. Then as I mentioned in 2022, we had a growth of the market of 5% this year will be slightly less, we expect the market to go around 4% at this very limited new liquefaction capacity coming to the market this year. We will have about 8 million tonnes from U.S. mostly due to Freeport restart. Trinidad Tobago have been able to get the feed gas level up and we expect 2 million tonnes from Trinidad Tobago LNG plant area, Norway has started off last year, so we do expect the annual increase of about 2 million tonnes. Mozambique, they have our FLNG, which will be producing for our full-year this year. End of the year, we will have on new FLNG in Mauritania, adding some volumes and some other 2 million tonnes from other project bringing the market to $416 million as estimate for 2023.

I’m looking forward, however, there is still plenty of new projects coming to the markets especially around ’25, ’26, ’27 When as I mentioned we are marketing ships. We have a lot of projects under construction. As you can see here, $95 million Rest of the World, of course the Qatar is the big driver here, and then some projects in North America like Golden Pass and LNG Canada, we also have some projects being already reached FID. So, if we look at the project under construction, and those who have been given the green light to start construction, we are ending up at our volume of 583 million tonnes. However, we also expect more investment decisions to be made especially in America, as I highlighted on this arbitrage where Henry Hub prices are very low compared to international prices.

So the project we see here highly likely I will come back to this 73 million tonnes more than U.S., 46 Rest of the World which can bring this market to 700 million tonnes by 2030. So, let’s look at the big contenders for FID or Greenlight of new projects we have in Texas two projects Rio Grande from NextDecade and Port Arthur, quite sizable projects. We do expect FID to be imminent. They have also signed off-take for our vast majority of the volumes being produced. And then we also have two projects which is closing in on FID in Louisiana, is the Calcasieu Pass 2, CP2 from Venture Global which Venture Global have an excellent track record on getting off-take for the project and building them in very short time to market. And then it’s the Lake Charles from Energy Transfer which is also closing in on FID date.

So with that, I think we will conclude today’s presentation just to remind you of our highlights, revenues $98 million in line with guidance, strong earnings $41 million or $55 million, respectively for net income and adjusted net income, which gives earnings per share and adjusted earnings of $0.78 and $1.02 respectively. We have continued building our backlog with contract we announced for Cheniere. In November, we are upbeat about the prospects of adding further backlog to our company, Knut has finalized the balance sheet optimization program, we still have some loans to be executing during Q1, which clearly will bring the total net proceeds from this refinancing of utility in ships to $387 million which as he has highlighted will give us our very strong cash position.

Revenues for next year is expected to increase by about $20 million to $370 million, despite us carrying out for dry dockings. And this is driven by higher time charter equivalents earnings of about $80,000 per day expected for 2023. And with a strong backlog, strong financial position, great outlook, we are today paying out $1 per share dividend which gives very attractive yield, we think of 11%. So, with that, I think we conclude today’s presentation. We will be doing our Q&A. Just a reminder, you can win the Lexington bed linen kit for the best question. So, Knut and I will now start the Q&A round. Thank you very much.

Q – Knut Traaholt: Let’s go. Let’s and as last quarter, Omar Nokta, and now also, asked what is the key strategic priorities for management, and main objectives going forward?

Oystein Kalleklev: Yes, near-term, of course, it’s to close — for Knut to close the current financing during the first quarter, releasing this $204 million of cash. Longer-term, I think I highlighted it in the chartering strategy. We have two ships now open 2027, which we are marketing in our market where term rates have gone up. So, of course, our key priority is to try to secure some attractive long-term contracts for those ships, and then thereby increasing our backlog and hopefully also improving the earnings profile to higher term rates on those ships. We also have ships — two ships coming open early ’28, which I also think will be finding a marketing window during the year. So, it’s mostly about building more backlog.

I think the financing process is done for now. As we have highlighted in the past, and I also mentioned, that new building prices are quite stiff, so we rather focus on building more backlog for existing ships which are the same type of technology. And let’s see, we have a strong balance sheet, so we can always act on opportunities quickly; $400 million revolving credit line available for us in case we see opportunities. I think we can easily scale the company. As I mentioned here, we have fantastic uptime and quality on the service we are delivering. So, nothing like big for the moment, I don’t think it’s the time to rush to the yards, but keep building the business step-by-step like we’ve done the last couple of years now.

See also 15 Biggest Natural Gas Pipeline Companies in the World and 13 Biggest Eyewear Companies in the World.

Q&A Session

Knut Traaholt: And there’s a number of questions here about fleet, fleet expansion, and how do you look at your — the new building prices and ability to go to the yard for new buildings.

Oystein Kalleklev: Yes, I think I mentioned it already. One thing is, when interest rate are zero and you are coming to a new building contract where you have a lead time of close to four years today. So, kind of the alternative return on that money, which you’re tying up in yard fee and installments, you have zero return on that capital. And that means that a ticket price of $250 million is certainly approaching $270 million-$280 million when you are kind of taking into account the alternative return on that money you are tying up in that investment. So, I think it’s not really attractive for us. Of course, if there is a tender where there are long-term contracts, given the high or elevated new building prices, I think you need to see 10-15-years contract in order to kind of defend such an investment, which I think makes it a very good window for us to fix our existing ships.

So, we are always open for consolidation. The sea tankers group of companies, Frontline, Golden Ocean, SFL; we have also been open to consolidate. We don’t have any big egos there. We want to do what’s best for the shareholders. So, we always have the door open for consolidation, but only if it’s good for our shareholders, not necessarily for us as management.

Knut Traaholt: Good. Then moving over to capital, and we have this ATM program. And a number of questions, can you give some color on the background, the rationale for it, and how to use the proceeds?

Oystein Kalleklev: Yes, it’s — when we started thinking about listing this company in the U.S., it was 2018. And one of the things we did then was to change our accounts from IFRS to U.S. GAAP already in 2018. Capital markets in 2019 for LNG shipping companies were very poor. So, what we did was a direct listing, and we listed the company in U.S., June, 2019. When we did the direct listing, that meant we never issued any shares in the U.S. market. So, it took a while before the liquidity of the stock became to a level where it’s today. At the same time, when we had the slump during COVID, in 2020, our stock price was negatively affected by that, and we bought back stock, 980,000 shares we bought back in that period, which we have still in our treasury today.

So, the ATM is kind of a way of us improving the liquidity of the stock since no stocks have ever been issued in the U.S. So, basically, we are selling back some of the shares we have bought back in order to create a bit better flow in the stock. We don’t have any immediate capital requirements for this cash. And also one of the reasons why we are paying out a special dividend today of $0.25 on top of the $0.75, which gives the investors a good time on Valentine’s.

Knut Traaholt: Moving a bit over to more shipping-related and the contract portfolio, the questions about termination risk in case if natural gas prices falls down how do you look at the stability for the charters to amend their contracts?

Oystein Kalleklev: Yes, I think you the super stress test on this in 2020, during COVID, when LNG price in Europe went below $1.00 per MMBtu. It was up, as I mentioned in the presentation, in August, above $100 per MMBtu. And Asian prices were as low as $1.80. I’ve never seen — I don’t think anybody else have seen termination of these contracts ever since the LNG industry started, 50 years ago. These are hell-or-high-water contracts. Usually, the people who are shipping, they also have a cargo they need to ship. And of course, the cost of the freight is usually quite low compared to the value of the cargo. So, it’s not something we have ever seen, and we didn’t see it in 2020, even though people were losing money, even though a lot of cargos in the U.S. were cancelled, and a lot of ships were idling, we still saw that everybody honored their contract.

And keep in mind, LNG is the big boys’ game. If you think about the super majors, their size in the oil market is very small compared to all the traders and the national oil companies. In LNG, it’s mostly the super majors and it’s the big national oil companies like Qatar Gas. So, it’s not a lot of shady counterparties, it’s good counterparties, and that also make it reliable partners for us to do freight.

Knut Traaholt: Yes. You mentioned LNG is a big boys’ game. There’s a question here if Flex will start buying and trading LNG, and not only transporting it?

Oystein Kalleklev: Yes, it’s not — LNG — selling and buying LNG is incredibly complex. You need a totally different organization for doing that. You need to have master sales and purchase agreement with all the relevant buyers and sellers. And of course, keep in mind, the cargo values can be substantial, with cargo values going to $200 million. So, it needs a — you need a lot of working capital to finance that type of activity. Another point is, of course, we would be competing against our customers for spot cargos, which I would think that some of the charters would maybe shy away from chartering our ships if we are competing head-on-head with them. So, we’d rather focus on the transportation side of the business, which is our shipping business, which we find a good and attractive business and we can run a lean organization doing that activity, which we couldn’t have done on the LNG trading side.

Knut Traaholt: Then more shipping-specific, how many days does a ship use to cross the Atlantic?

Oystein Kalleklev: Yes, usually U.S.-Europe, five, six — mostly 6,000 nautical mile. It’s fairly simple to calculate this. So, in natural boiler speed, we are at 18 knots, there’s 24 hours a day. That means you are traveling 432 nautical miles in a day. So, that means 14 days U.S.-Europe. You need some time for the loading; you need some time for the discharging. So, basically, you can do one cargo a month, that translates into 12 cargos a year. And then you are lifting 900,000 tonnes a year, give or take.

Knut Traaholt: Okay.

Oystein Kalleklev: Of course, if you’re going into Asia, it’s a longer distance. Then, it’s 10,000 nautical miles through Panama. And if the Panama canal gets clogs, which usually happens from time to time, then you have go through Cape of Good Hope and you are 15,000 nautical miles. So, that means when cargos are flowing from U.S., the long way either through Panama or Cape of Good Hope or Suez to Asia that usually tightens the LNG shipping market because ships are able to transport less cargo here.

Knut Traaholt: And then there is another of question of de-carbonization and environmental impacts, and focused that on regulators side than politicians, how will that impact the LNG shipping and FLEX in particular?