Knut Traaholt: Then we’re segueing over to business development and capital allocation. So maybe we’ll start with the growth questions, how do you plan to grow Flex LNG beyond the 13 vessels?
Øystein Kalleklev: We had this question now for some time. We’re looking at the market but we are stewards of the shareholders’ capital, if we contract the ship today, if we’re super lucky, maybe we get a ship in ’27. But the slots availability are now getting into ’28. So that means that we are spending, let’s say, $262 million today to get a ship in ’28. So we are not seeing that money for four years. It’s not the price, it’s not $262 million because we need to have supervision we might need to draw a loan a building loan with a bank which needs an interest rate. Interest rate is 4%. They might want a margin, 2%, so that’s 6%. So once you’re taking that into account, the cost of that ship is not $262 million, it’s maybe $285 million or so.
That means — is that a better use of cash than paying dividends? So far, we haven’t been convinced that it’s better to spend that much money on new ships. So we’re rather focused on the ships we have. We have one ship now we or open in Q2, we have Flex Ranger fully open in ’27, we might have some ships open in ’28, ’29. So why not focus on the ships we have open ’27, ’28 rather than slashing out all this money on new ships. So we are not there to pursue growth because Knut and I can be happy with having a bigger fleet. number 1, number 2 and number 3 focus is return on equity turn of that money to shareholders through dividends and we’re not going to pursue growth just to be big. We’d rather be big on dividends.
Knut Traaholt: And there’s a question related to that on paying dividends versus buying back our own share. How do you look at share buybacks?
Øystein Kalleklev: Yes, we have done it in the past. So we did this — was that end of 2020 into ’21? So we bought back about 1 million shares at that time. Of course, we deemed it very attractive and haven’t — have to check the stock price after the webcast and see. So we’re open to do that. If we feel the stock is getting too much suffering because of sentiment, we might elect to buy back some shares for sure. So we’re open to that could be an alternative, not ruling it out. But for this quarter, we are focused on paying our dividend and let’s see what happens. It really depends on where we see the best use of the company’s cash.
Knut Traaholt: And you mentioned growth for Newbuildings. Richard Diamond from Castowood [ph] Capital asks, is there any room for industry consolidation? And would you consider a nav-to-nav acquisition?
Øystein Kalleklev: Of course, we have said for many, many years, we are certainly open for consolidation. We think there is a lot of consolidation opportunities because it’s quite fragmented on the owner side, a lot of actually the vast majority of LNG shipping companies are private, very few in the public domain. So we think it could make sense to have a bigger public vehicle, make it more relevant and interesting for especially bigger institutional shareholders. But we don’t want to go to bed with strangers, we want to go to bed with people we share the same values, philosophy, ethics and also the fleet in terms of having a modern efficient fleet. We don’t see any value in merging with somebody who has a lot of tonnage [ph]. So we need to find all those parameters so that we can have a marriage rather than a night stand.
Knut Traaholt: And then a question on reinvestment in the existing fleet and then particularly on air lubrication system. Is it technical possible? Is it economically sensible to do that?
Øystein Kalleklev: Yes. Air Lubrication has been something that have been coming up the last couple of years. So just to give you a highlight of what that is. It’s basically you are putting a compressor on ship and you’re making small holes under the hull and that compressor is taking and compressing it and creating bubbles under the hull. So the theory behind this is these bubbles under the hull is going to reduce the draft when you are going through water. Of course, ships are going through water, it creates a lot of resistance and if you can reduce that drag, you could potentially then either say fuel or reduce or increase speed I think for our ships, they are very modern and efficient. So we looked at it when we contracted, we weren’t totally convinced and as far as we understand, we did the right choice because the first generation of air lubrication system has not lived up to the promises.
The makers of these systems are saying that the second generation is a lot better. Let’s see when we get the data. And a lot of ships today are being built with this system on our ships because the efficiency of the engine is like 50%, 52% terminal efficiency. That means that on a natural boiler speed, we still had a very high speed of 17.5 to 18 knots. So we don’t really need more speed. If you add this, it might go. And then — but you also need to utilize natural boiler speed. So putting this on and getting like a turbo from going from ’18 to ’19 doesn’t really make a lot of sense. On older ships, it could make sense as part of your strategy to improve your carbon emission indicator because your ship then, if you have a tri-fuel or so, if you have a speed of 15 knots and you need to force boil off in order to go quicker.
If you’re adding this, you get higher speed. So then it makes more sense to put it on an older ship However, on older ships, you might not want to invest that much money because it’s less technical efficient. But that said, we’ve seen this happening also on the retrofit side. It’s quite easy to retrofit the air lubrication system. We’ve seen it on our 10-year tri-fuel recently, where they put this on while she was doing a 10-year special survey. So it’s open but we are not considering at the moment. But down the road, the price of carbon is continuing to increase if the carbon emission system is worldwide, where you have to pay for it and you get a more monetary incentive to reduce emissions, then we might consider it. But certainly not before the ships are doing a 10-year special survey.
Knut Traaholt: I think we’ll round off with the last question and that’s more of the tips to retail investors that want to follow the daily development in the LNG spot rates. And the question is if the BLNG 2 [ph] on Baltics quoted on CME. If that is a good proxy for our open positions or other?
Øystein Kalleklev: Yes, it’s a bit of a problem is that there’s very limited data on freight rates for LNG. It’s a bit of a niche market. It’s a hell of a lot easier to follow the dry bulk in the tanker market because there’s a limited. There’s very many sources for that kind of spot data. I would say that you can go to the CME, either you get the freight derivatives. You can see the kind of the forward freight market for a couple of different routes. So the Baltic LNG is a good source. You also have Spark which is a provider I follow them on Twitter or X. So that’s also a good source to get the data on the spot market. Fernplus.com by Fernlea [ph] is also a good source for rates on several of the segments, Rival Tankers, VLGC, LNG, although they only quote on that page as far as I know, spot rates for high fuel ships which are a bit more inefficient than those ship.
So I would use all of those and if I come up with some better sources, I’ll come back to that and maybe we could even make a link on a page. But a good source is to follow Sparks on they are regularly giving an update on the rates.
Knut Traaholt: And that is for the two stroke? Or is that for?
Øystein Kalleklev: They have both for all the tri-fuel ships and the two strokes yes.
Knut Traaholt: That concludes the Q&A.
Øystein Kalleklev: Thank you, Knut. I hope you have a good birthday celebration today. And thank you, everybody, for listening in. We will be back in May with the Q1 numbers and give you an update on the company and our results in relation to the guidance provided. And if you are fond of dividends, don’t miss out on the advanced gas [ph] Valentine’s Q4 presentation, next Wednesday, 14th of February. Okay. Thank you, everybody.
Knut Traaholt: Thank you.
