Market Update January 2019 1
Company Highlights During 2017 and 2018, Flex LNG has raised $629m of equity and $473m of debt financing to increase its fleet from two to thirteen LNGCs All thirteen LNGCs are large 174k cbm fifth generation vessels fitted with slow speed two stroke dual fuel engines (ME-GI and XDFs) resulting in significant reduction in unit transportation costs compared to steam or tri-fuel vessels Four vessels delivered during 2018, two vessels scheduled for delivery in 2019 and another seven for delivery in 2020/21 Due to well positioned fleet and buoyant market, revenues expected to increase from $19m in Q3 to $ 35m in Q4 2
Unique fleet comprising of 13 modern large 5 th generation LNGCs ME-GI and X-DF vessels are the most fuel-efficient and technically advanced LNGCs High Pressure Low pressure ME-GI ME-GI with Partial Reliquefaction System ME-GI with Full Reliquefaction System X-DF Ranger (2018) Endeavour (2018) Reliance (2020) Aurora (2020) Rainbow (2018) Enterprise (2018) Resolute (2020) Amber (2020) Initial Flex LNG LNGCs Constellation (2019) Freedom (2020) Volunteer (2021) Courageous (2019) Vigilant (2021) Acquired in 2017: $329m equity issued Acquired in 2018: $300m equity issued 3 Source: Company
The leading owner of 5 th generation LNGCs Flex LNG is the largest owner of 5 th gen LNG vessels Unit transportation costs (round-trip US gulf to China) 14 Open: 13 On Order Trading $/MMBtu 3,5 12 Open: 0 3,0 10 2 Open: 0 Open: 5 2,5 8 9 Open: 4 2,0 6 7 9 Open: 0 Open: 2 Open: 0 Open: 0 1,5 4 9 8 4 3 4 3 1,0 2 0 4 Flex LNG 3 1 Teekay GasLog Maran Gas 2 2 Cardiff BP BW Group 1 NYK 2 Knutsen OAS 0,5 0,0 1st Generation 145k ST 155k ST 160-165k 174k ME-GI DFDE/TFDE Fuel Boil Off Port Charges Charter Hire (1) Assuming speed of 16.5 knots (~74 days round trip), term charter rate of USD 70k/day, boil off gas priced at USD 5 / mmbtu, port cost of USD 250k, and allowance for port fees and loadring discharge time. Source: Poten & Partners 4 Based on commercial ownership of the vessels (source: Poten, Clarkson & Company)
Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 Apr-16 Aug-16 Dec-16 Apr-17 Aug-17 Dec-17 Apr-18 Aug-18 Dec-18 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 Apr-16 Aug-16 Dec-16 Apr-17 Aug-17 Dec-17 Apr-18 Aug-18 Dec-18 LNG transportation in early phase of recovery Estimated weekly average LNGC spot rates Spot $/Day 250 000 Natural Gas Prices by Region and Arbitrage US -> Asia $ / Mmbtu 25 200 000 20 150 000 15 100 000 10 50 000 5 0 0 LNG 145K CBM Spot (Steam) DF-2S LNG 160K CBM (TFDE) ARB - US -> Asia Delivered Asia Henry HUB US NBP Europe Headline spot rates doubled from 2017 to 2018 due to tighter LNGC market driven by strong demand Arbitrage window expected to improve from Q4-18 to 2019 5 Source: SSY, Affinity, Bloomberg and Company
Steep nameplate capacity growth going in to 2019 80 Mmtpa-Post FID Cameron LNG Export T1-3 Incremental LNG capacity growth 2018-2021 70 60 Cameroon FLNG Coral FLNG Corpus Christi LNG T1-3 Elba LNG Freeport LNG T1-3 50 Ichthys T1 Petronas FLNG (Sabah) 40 30 Sabine Pass T2-5 Tangguh LNG T3 Wheatstone LNG T1-2 Yamal LNG T1,3,4 20 10 0 01.04.2018 01.07.2018 01.10.2018 01.04.2019 01.10.2019 01.01.2020 01.04.2020 01.07.2020 01.10.2020 01.10.2021 01.07.2022 6 Source: Bloomberg, Poten and Company
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Resulting in glut of LNG coming to the market Year on Year Change LNG Export Volumes Mmtpa-Post FID 40 Post FID AND Likely LNG Export Projects 600 Mmtpa 35 30 25 20 Other North America Russia Africa 500 400 15 Indonesia 300 10 5 Malaysia Australia 200 - (5) Qatar 100 (10) 2019 2020 2021 2022 2023 2024 2025 0 North America Other Russia Africa Indonesia Malaysia Australia Qatar 7 Source: Bloomberg, Company
Tonnage demand by key LNG export areas ~2,2 x Vsl ~2,2 x Vsl ~1,5 x Vsl ~1,4 x Vsl ~0,8 x Vsl ~1,2 x Vsl Country / Region 2018 % of Supply Multiplier New Export MT 2019E Vessel Demand New % split Supply Africa 10 % 1,46 0,70 9 % Australia 22 % 1,16 10,5 12,2 21 % Qatar 24 % 1,39 23 % South East Asia 15 % 0,83 14 % U.S. 7 % 2,19 15,0 32,9 10 % Row 22 % 1,50 7,0 15,4 23 % Volume weighted multiplier 1,34 33,2 60 1,37 # of Vessels needed to deliver 1 MT of LNG gradually increasing as especially US and Northern Russia (winter) volume grows. 2018/2019 the multiplier is expected to increase by 2,5%, absolute volume by 9%, fleet by ~10% 8 Source: Poten and Company
Nautical miles Shipping multiple Why 1.3x multiple for LNGC? Basic assumptions: Average size of 155,000 cbm is capacity of 68,350 tonnes 14 000 12 000 Sample routes 3,5 3 Average sailing distance: 4,000 nautical 10 000 2,5 miles 8 000 2 RT 8,000 nautical miles 6 000 1,5 Average speed (ballast/laden): 15 knots Average RT inc discarge/loading time: 29 days 4 000 2 000 1 0,5 2% time spent for dry-docking 0 0 Average utilization: 90% Yearly lifting capacity per vessel: 750,000 Gives multiple per mmpta of about 1.3 x 9 Source: Company
Half of US cargoes going far east in 2018 US cargo destinations for 2018 13% 6% 29% 52% Asia Europe Lat America Middle East 10 Source: Poten and Reuters
MT/M Larger than usual movement in inventories 2,00 World Exported less Imported LNG Balance (Adjusted for boil-off) 30,00 1,50 1,00 0,50 20,00 10,00 - (0,50) (1,00) (1,50) # Vessels - (10,00) (20,00) (2,00) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2018 vsl 5y Avg vsl 2018 5y avg (30,00) In periods where Exports surpasses Demand, storage appears Vessel demand increases in the build up towards peak demand As imports catch up, inventories are drawn and vessel availability grows 11 Source: KPLER and Company
El Nino conditions have resulted in higher temperatures in Pacific Sea Surface Temperature anomaly December 2018 12 Source: Australian Bureau of Metrology
# Vessels Nautical Miles Very few uncommitted vessels available before H2-2020 Order book for large LNG carriers Average sailing distances (laden) 18 Committed Open 4 800 16 14 4 600 12 10 8 6 4 2 0 1 7 6 17 4 9 2 11 2 6 3 7 6 5 5 2 4 1 2 2 1 1 1 Qtr1 Qtr2 Qtr3 Qtr4 Qtr1 Qtr2 Qtr3 Qtr4 Qtr1 Qtr2 Qtr3 Qtr4 2019 2020 2021 4 400 4 200 4 000 3 800 3 600 About 105 LNGC orders including 6 Arc 7 LNGCs Very limited open vessels before H2-2020 Increased sailing distances due to US/Russian volumes supportive of LNGC demand 13 Source: Fearnleys and DNB
# No of Vesels Ketchup effect on ordering 80 LNG Contracting activity 70 60 50 40 30 20 10 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 187 vessels 110 vessels 14 Source: Poten
Switching to LNG is as much health policy as energy and/or environmental policy In South Asia, air pollution larger health risk than tobacco, cancer, water sanitation and on par with dietary risk If the air pollution improves from China's level to the American EPA standard level, that means that would improve everyone's education by around one year 15 Source: Texas A&M University, NPR and Science News
Air pollution: a glocal problem 9 out of 10 people breathe unhealthy air. 6.5 million pre-mature deaths every year caused by outdoor and household air pollution. 16 Source: WHO/FT
Summary Right Ships Right Time Right Market Four LNGCs on the water and nine LNGCs under construction, all fitted with 5 th generation propulsion (two-stroke low-speed engines) providing substantial fuel savings and larger parcel size The market have re-balanced and is now in early phase of recovery with higher charter rates and utilization as well as increased interest for longer term contracts LNGC market have very strong long-term fundamentals due to increased demand for LNG, emissions focus and commoditization of LNG resulting in more trading Right Owner The principal shareholder has evidenced unrivaled performance in building strong shipping companies and is supportive of Flex LNG in relation to credit and S&P transactions 17
Q&A 18