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 market. As always, we will conclude with a Q&A session. If you'd 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. Without further ado, I hand over the floor to Øystein Kalleklev, the CEO of Flex LNG Management, who will guide you through today's presentation together with our CFO, Knut Traaholt. Go ahead, Øystein. The floor is yours.
Hi, everybody, and welcome to Flex LNG second quarter results presentation. We are pleased today to deliver strong numbers of 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 a strong profit for the quarter. We, in June, announced three new contracts, two 7-year charters and one time charter of 10-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 at around $90 million, while we expect Q4 revenues to be somewhere in the range of $90-$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 a balance sheet optimization program where we raised $137 million of fresh cash, and we are now distributing some of this cash or excess cash back to our shareholders.
With our distribution, 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 3 new contracts in June. Two new 7-year time charters for FLEX ENTERPRISE and Flex Amber, which already commenced on July 1 and will be running until end of Q2 2029. We also fixed FLEX RAINBOW on a 10-year charter, which will start in direct continuation of our existing time charter, which is elapsing in January 2023, i.e., this ship is covered until start of 2033. Altogether, this added 24 years of backlog. As I now mentioned, our backlog is now 54 years with additional extension options which could further increase this backlog.
We have been busy fixing out a lot of ships recently. Prior to COVID, we have only fixed one ship. We fixed the Flex Artemis on a variable time charter in the autumn of 2019, and that ship was delivered on that contract in August 2020. During 2020, the market was very depressed, also affecting the long-term time charter rates, and we decided to rather play the spot market and wait to fix our ships when the market has improved. Last April, we fixed 5 ships to Cheniere, Flex Endeavour, Flex Ranger, Flex Vigilant, all commenced their time charter last year. Flex Volunteer commenced her time charter with Cheniere during the second quarter, and Flex Aurora will commence her time charter with Cheniere at the end of third quarter this year.
In May last year, we also fixed two ships, Flex Freedom and Flex Constellation. Flex Constellation for a prompt 3-year time charter where we delivered that ship to the charterer in May. Flex Freedom for a 5-year time charter where we delivered this ship to the supermajor in the first quarter of 2022. Last autumn, we also fixed out two more ships, Flex Resolute and Flex Courageous, which were delivered to the charterer at the beginning of 2022. These contracts are for 3 + 2 + 2 years, but we are very confident that these ships will sail under these time charters for a total of 7 years. As I mentioned, we recently fixed three more ships, Flex Amber, FLEX ENTERPRISE, and FLEX RAINBOW, on 24 years of total contract duration. This means we have a very strong charter backlog.
During our May presentation, for the first quarter, we put in 3 stars in this overview. We put in a star on Rainbow, the Amber, and the Enterprise as these ships were coming open in the market, and we were very confident in our ability to fix these ships on attractive new charters. For Flex Amber and the Enterprise, we replaced the variable time charter these ships had, and we replaced them with 7-year fixed higher time charters as mentioned. While FLEX RAINBOW is fixed forward for Q1 next year and then for a duration of 10 years, bringing that ship into 2033. Our spot exposure has thus also been reduced quite a lot. In Q2, we had 3 ships on variable hire index, Amber, Enterprise, and Artemis.
We also had about one half ship in the short-term spot market. These were Flex Aurora, which we fixed on a 5-7 months, multi-month, time charter, and where she will be delivered to Cheniere at end of Q3. Flex Volunteer, Cheniere agreed to take early delivery, and this ship was delivered to Cheniere in the middle of Q2 after servicing spot market. Going forward, most of our income is fixed rate hire, so our earnings visibility is very predictable. The only ship exposed to the spot market is Flex Artemis, which is on a variable hire time charter linked to the spot market and which is expiring in August 2025 with further extension option by the charterer. Let's talk a bit about the dividend.
We have put up in the past a list of the key decision factors influencing our board when we are making the appropriate dividend level. As you can see, our adjusted EPS has been picking up. Q2 is usually the weakest or softest quarter in LNG shipping, as this is the low season of the market. With our increased fixed rate higher contracts, our Q2 numbers for this quarter is actually stronger than the Q1 numbers. This is the fourth time we are paying out our ordinary quarterly dividend of $0.75. After we fixed 9 ships last year on attractive contracts, we hiked our dividend to $0.75, and we are continuing paying that quarterly dividend. In addition, this time, we are also paying a special dividend of $0.50, bringing it to $1.25 per share.
Because, as I mentioned, we have been through a big refinancing phase where we have boosted our cash balance to $284 million at the end of second quarter. When we are looking at these decision factors, we said last May that we expected all these factors to turn green by the second quarter, and so they have. Our earnings are strong. The market outlook is good. We have a fantastic backlog. Our liquidity position with $284 million is very strong. We are passing all the financial covenants with flying colors. We have no upcoming debt maturities near term, and all the ships have been delivered. CapEx liability are only related to the ordinary dry docking of these ships, which we will have four of next year, but such cost is about $3 million per ship.
Other consideration is a bit more difficult to kind of assess. With our Fed aggressively fighting inflation and cooldown of the Chinese economy and fairly volatile financial markets, we still keep this factor at light green. Nevertheless, we are paying a very juicy dividend for this quarter. With that, I think I hand it over to you, Knut, for our financial wrap-up.
Thank you, Øystein, 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. This equates to a time charter equivalent per day of 70,700. This is significantly higher than the second quarter for previous years. As already mentioned by Øystein, the second quarter is normally a seasonal low quarter in LNG shipping. The higher result is explained by our fixed rate contract portfolio, where we have a higher number of vessels on 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.
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 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 the 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.
That comes into the net income of $44 million or $0.83 per share, and an 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 end. As a reminder, this fleet has been acquired and the book value reflects that these were acquired at the historical low prices and is only adjusted by regular depreciations. Our balance sheet, as already mentioned, has a rock solid cash balance of $284 million. If you look at the equity of $910 million, that equates to an equity to book ratio of 34%.
If we look at the cash flow for the quarter, it's mainly affected by the refinancing activity that we did in the second quarter. That is the conclusion of the balance sheet optimization program phase one, where we released $111 million during the quarter. That boosts our cash balance to $284 million. As a reminder, amortization in Q1 and Q3 are higher, so it's a bit lower amortization this year due to the semiannual repayments under the ECA facility. If we then go to the next phase of the balance sheet optimization program, we have completed phase one. We have one vessel left for delivery. That is the Flex Endeavour under the $375 million term loan and RCF facility. She will be delivered back to us and under the financing now during September.
For the phase two, we have started this with the FLEX ENTERPRISE. We have bought her back on our existing fixed rate sale and leaseback structure, and we have refinanced her with cash, so she is probably the only unencumbered two-stroke LNG vessels in the world for the moment. We have initiated the various financing dialogues, and we are in advanced stages for a $150 million bank loan facility, which is back-to-back with the contract, the seven-year contract with the supermajor. We are considering further refinancing. It's one for optimizing our debt funding, but also to free up an additional $100 million in cash. Our priorities is to extend our repayment profiles, improve the pricing under the facilities that will reflect our credit profile, but also the credit profile under the underlying contracts.
Then we are further seeking to push out debt maturities and improve leverage to release the $100 million in cash. We see here we have a number of facilities that we are addressing. After the FLEX ENTERPRISE, we will consider all of these. It could be an amendment, an extension of existing financing or plain refinancing. All in all, this is what we will spend time on for the next quarters, and we hope to revert shortly with more updates on this. Let's take a look at our interest rate hedge portfolio. We have a combination of fixed rate lease for the Flex Volunteer entered into in December last year at an all-in rate of 4%.
In addition, we have a portfolio of interest rate swaps with a notional value of $853 million. Historically, this has been LIBOR swaps, and in Q1, we'd entered into $200 million in ten-year interest rate swap based on SOFR. During the second and third quarter, we have amended and extended some of our LIBOR swaps notional of additional $250 million and swapped these for ten-year SOFR based swaps at attractive levels. If you look at the SOFR portfolio, that is on average remaining duration of 8.9 years at 1.9% fixed rate. That is attractive compared to the ten-year swap rates of 3.1%.
Also for our LIBOR swap portfolio, which is a shorter duration of 2.8 years compared with the two-year swap rates at 3.7. Overall, this gives us a hedge ratio of 63% on the total debt, excluding any utilization of the RCF. This gives us a solid foundation for further increase in long-term interest rates. With that, I hand it back to Øystein for an update on the LNG market.
Thank you, Knut. We have certainly been ahead of the curve compared to the governors of Federal Reserve. We started worrying about inflation with all this fiscal stimulus and have entered into a very good portfolio of interest rate hedges, which have so far this year.
Gained $46 million. Good job on those swaps. Let's talk a bit about the market. Global LNG volumes is up about 5% in the first 7 months of 2022. As in the past, this most of this LNG export growth is driven by U.S. U.S. is contributing about half of the growth in this first 7 months of the year, with 6 million tons additional exports. Russia, despite all the sanctions for Russia, is still increasing its LNG exports, particularly from Yamal. Of course, there are really no sanction on Russian gas. The Russian gas will continue to probably grow.
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 other bracket here is mostly Australia and Malaysia, which have added about half of these 4 million tons. That brings us up to 232 million tons of exports in the first seven months of the year. More interestingly is on the import side, where Europe has been gobbling up LNG spot cargos on an unprecedented level. Far this year, about 2/3 U.S. LNG cargos have ended up in Europe, compared to 1/3 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.
Chinese imports this year is down by more than 20%, so their imports is down 9 million tons. European buyers has just been able to get access to these cargos, which would have been a lot more difficult if the Chinese economy was running at normal capacity. If we're looking then more into the European gas crisis, Europe came out of this winter with very low levels of gas. This was further aggravated by the Russian invasion of Ukraine in end of February, which kind of put a panic in the market. European gas consumption in the first half of the year is actually down 10%, but this is mostly driven by pipeline imports, especially from within Russia.
The pipeline gas flow in the third quarter so far is down 75% compared to the levels in 2021. Actually, the levels of imports from Russia were pretty low in 2021 in Europe compared to the pre-COVID levels. Nevertheless, given the rapid increase in LNG imports in Europe, European gas inventories have actually been brought back to the normal level. We are seeing the inventory levels approaching 80%, coming into September. However, the gas crisis has not been alleviated with the reduction in the Russian pipeline flows. Europe will face a very difficult time during the winter, as there's not enough LNG in the market to replace the Russian pipeline flows. If we look then at pricing, the price of LNG has rocketed.
These are the numbers from close of day Monday, when the TTF, which is the Dutch gas hub price, hit $84 per million BTU. This is close to $500 per barrel of oil equivalent. We also saw the German one-year forward electricity price equating to somewhere close to $1,000 per barrel of oil equivalent. The glut of LNG into Europe have, however, created some bottlenecks. We see the widest spread between LNG and pipeline gas prices in Europe ever. The price for LNG cargo delivered ex ship in Northwest Europe is $60, so a $24 spread compared to the pipeline gas price.
The European gas prices is also driving up the spot price for LNG into Asia, where the JKM, which is the Asian benchmark price, is more or less on par with the LNG price in Northwest Europe. Even though the Henry Hub now is at a 14-year high of around $10, it's immensely profitable to export these cargos from U.S. to either Europe or Asia, with the arbitrage of around $200 million per cargo. Keep in mind that about two-thirds of all the cargos are still being sold on long-term contracts at a discount to oil. That gives a price of around $12 per million BTU, and these cargos are mostly shipped into Asia. Asia is mostly tapping the spot market for marginal cargos in the peak season, which is usually the winter.
We are certainly in for an interesting winter. If we're then looking at forward prices, high gas prices are here to stay. The future prices are way above the oil price-linked contract price. In the bottom of the graph here, you can see the Henry Hub price. It's at a 14-year high now of $10. But given the vast shale resources in U.S., the future pricing is leading to a lower price in U.S. The gray line here is the price for LNG sold on long-term contract linked to oil, which is still at a fairly low level when you are comparing to the spot prices on the European gas hub, TTF, and JKM, which is the Asian spot price for LNG.
Lately, Europe, as I mentioned, has been the main driver for the price increases and prices are at a premium to Asia. This premium is also why the spot market was very soft in Q1 following a very strong spot market in Q4. The high price in Europe has incentivized export from US or the Atlantic area into Europe rather than to Asia, which entails longer sailing distances and thus absorb more shipping capacity. However, as I mentioned, there is a big price spread between the gas price in Europe TTF and the LNG price in Europe. We do see some cargoes being shipped to Latin America and Asia as there is really not enough capacity to import these cargoes into Europe. High gas prices actually mean for us higher earnings potential for our modern LNG carriers.
All LNG carriers are about 60% more efficient than the older steam generation, and they are substantially more efficient than the diesel-electric or tri-fuel ships that was very popular 10 years ago. We have here highlighted a sensitivity on the charter rate given different LNG prices. Keep in mind that LNG ship mostly utilize the LNG on cargo as fuel, as we are utilizing the boil-off from the cargo tanks to fuel the propulsion of the ship. Having a more efficient ship means that you have a bigger cargo to sell at your destination.
If we are looking at, for example, prices today of $55 per million BTU, if a spot steamship is making $15,000 per day, which is basically its OpEx level, you can add a premium of $104,000 per day for a tri-fuel ship because this ship is much more efficient and generally a bit larger than a steamship. You can add another premium on top of that of $71,000 per day for a two-stroke ship, like a MEGI X-DF, bringing the charter rate to $190,000. Of course, these are theoretical numbers based on the fuel consumption and the cargo parcel size, but this means that in theory, with a $55 LNG price where a steamship is making $15,000, you could pay $190,000 for a modern ship.
All in all, a tight LNG market even increase the premium that all ships can command in the market. Let's have a look at the spot market. The spot market was super strong in Q4, where we actually saw the highest spot rates ever for LNG ships. As I mentioned, we had this shift of trade from Asia into Europe with the European gas crisis, and this resulted in a lot shorter sailing distances. Sailing distances fell 15% from Q4 to Q1, and this released a lot of ships available in the market, driving down freight rates at the start of the year. However, the market bounced back rather quickly. Usually the spot market bounce back around middle of March.
We bounced back a bit quicker this time, and the market recovery were very strong with rates above $100,000 during May into June, before we had this closed down of the Freeport LNG export plant in U.S. The Freeport LNG export plant has 50 million tons of annual production, so this resulted in a loss of around 15 to 17 cargoes on a monthly basis, thus releasing a lot of especially relets in the market. With more ships available in the market, freight rates plummeted back to around $60,000-$70,000 before now recently bouncing back strongly again to around $120,000. Some of the bounce back probably explained by the expectation that Freeport would start up again, loading from October. This has now been pushed back to November, as we learned yesterday.
This might delay the uptick a bit by a month or so, but the future rates for LNG spot rates are super strong for Q4, where we can see probably rates in the $200,000 range again. It also explain why we have a bit range in our Q4 revenue guidance as we have one ship linked to the spot market. Let's have a look at the term market, which has remained strong the whole period. The term market has been less volatile and very firm, even in this period with spot market weakness. One-year time charter rate for MEGI X-DF ships are above $170,000 per day. The three-year rate is, it's around $140,000 per day. These are extremely high period rates for modern tonnage.
Of course, as I mentioned, driven by a tight LNG market, high LNG prices, where these modern ships are commanding a high premium. Another factor is the new building prices have really been picking up. We did our investment in ships in 2017 and 2018 when new building prices were at around $180 million per ship. The last year or so, we have seen a big increase in the price of LNG carriers, you know, driven by higher materials prices, both nickel and steel, higher labor prices, but also much tighter balance at the yards because of the glut of orders, not only from LNG carriers, but also from the container ship, which is making yard slots fairly scarce. Today, if you want to order a ship, you are talking 2027 delivery.
Actually the delivery time for our LNG ship now is longer than most of the upstream LNG export plans. With the price now approaching $248 million for a new building, which is the price SSY is pegging now in the recent report, this has also driven up the five-year time charter rate. With higher CapEx, you need to have a higher rate to defend that investment. Five-year rates has almost doubled during the last 18 months from mid-60s, now up to $110,000 per day, which also gives us comfort on the further recontracting of our fleet. Looking at the fleet structure, as I mentioned, there's been a lot of LNG orders, and the order book is now around 250 ships. This is driven by two main factors.
One being the replacement of older tonnage, which is inefficient, as I previously illustrated. The second factor, of course, is the high growth of LNG exports coming, especially from 2024 and onwards. All the new ships for this trade is the new type, the MEGI X-DFs. The purple ones there are the specialized ice ships for the Russian Arctic trade, which doesn't really usually trade in the ordinary LNG carrier market. We do see here that there's a lot of steamships still in the market, and I will come back to that also shortly. Looking at the order book, as I mentioned, around 250 ships, but very few of these ships have been ordered on speculation. Almost all of them have been ordered towards new contracts or fleet renewal.
Out of these 250+ ships, only 30 ships are available for new charters, and very few of them in the period here until 2025. That gives us some comfort in our ability to also recontract our ships once they are coming open. Heading back to the steamships, we have had this graph with the dinosaurs for a couple of years now. These ships are too inefficient to continue to trade for longer term. A lot of ships are coming off existing legacy contracts, typically legacy contracts with a duration of 20 to even maybe 25 years. There are already 36 ships, steamships open in the market with average age of 28 years.
Then there are roll-off of 100 ships, steamships from contracts by 2027, and these ships will face a very hard time going forward, not only because of the high LNG price making them economically obsolete, but also because next January we have new IMO regulation, which we call the EEXI and the CII, which will put a much more stringent requirement on the efficiency of ships. We think this will result in a very big spike in attrition of older steamships, which will be replaced with the newer type ships. As mentioned, the global gas crunch is also creating interest for new volumes. We have seen an uptick in contracting for LNG. We have had during the last 18 months about 100 million tons of new volumes being signed up.
With the gas crunch in Europe, you should think that the European buyers were the big buyers, but actually, even though China has a reduction in their LNG import this year of more than 20%, they are signing up almost half of these volumes because the LNG story in China is in its early phases. This year, actually, Japan will probably import more LNG than China, and there live more than 10 times as many people in China. China will continue to grow once they are getting control with the COVID and are reflating their economy. We also expect European buyers to be signing up for more SPAs as they need to replace a huge amount of Russian pipeline gas with LNG and probably also then renewables. We have a list there of some recent contracts.
I'm not gonna go through all of them, but for sure there is a new wave of LNG export capacity coming. Let's finish with the first slide, the Q2 highlights. I'm just gonna repeat them. Revenues, $84 million, $10 million higher than Q1, in line with our guidance. Net income, on a healthy $44 million. Adjusted for these derivative gains, we came in at $33 million, translating to $0.83 or $0.61 earnings per share, respectively. We have recently announced 3 new contracts, adding further backlog to our fleet, which now has 4.54 years of revenue of firm backlog. Our revenues guidance remain the same as we recently updated. $90 million of revenues we expect in Q3, slightly higher than in Q2. We believe Q4 will be the strongest quarter.
$90 million-$100 million of revenues we expect, depending a bit on the spot market affecting the one ship we have on index. With that, we are also happy to announce today our biggest share dividend ever, $1.25 per share, including the $0.50 special dividend. This gives $3.50 of dividend the last 12 months or a yield of around 10%, which we think should be attractive for our shareholders. With that, I conclude today's presentation. We will now open up for some questions. Please use the chat function at any time or send an email to ir@flexlng.com and we will try to answer most of the questions shortly. Thank you. Okay. Thank you everybody. I hope you enjoyed the presentation. We are now gonna do some of the chat questions.
Knut, maybe you could start.
Yes, thank you all for the questions. I think we can start off with the question from Omar Nokta from Jefferies. We now have the sizable revenue backlog and the highest visibility since the company was created. 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 our size, which is at least double, easily. But you know, kind of investing in ships now at the price which we just showed ahead of $250 million for a ship, ships are due for delivery into 2027. If we're then spending $270 million of cash on... no, $250 million of cash, and that cash will be tied up until 2027, you know, we don't really see it as a very attractive investment choice given also the rather large order book.
We'd rather prefer sending some of the money back to our investors in 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 organic growth. We are also open for consolidation. I think, you know, we have a very good stock. The stock is the biggest market cap of any LNG shipping company in the world. It's fairly liquid, both in Oslo and New York. Of course, we could be open for consolidation, where we are rather kind of acquiring ships through the issuance of new stocks to those people who have maybe private ships. We are, you know, flexible in nature.
We are looking at opportunities, but you know, if we are to grow, it has to be creative. We like the dividends, so if we are doing something, we also have to make sure it's good for existing shareholders. We're not gonna pursue growth just to grow our fleet and build a bigger empire. We're very happy with the status quo today, and we can certainly continue just operating with the existing fleet, if we deem that to be more attractive than growing.
A follow-up from Omar on the demand side of it, or if we've been approached by the U.S. LNG export projects, the fast track that you took come on stream in the second half of the decade. Any been approached for either existing or new buildings?
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. As I mentioned, the earliest ship available is the middle of 2024. There are certain options here. The first fully open ship is the middle of 2026. We are focusing on those ships, seeing if there are opportunities to even add duration to existing contracts like we just did with Amber, Enterprise and Rainbow, because we find the term rates quite compelling.
Mm-hmm
They create a good value for us locking in that cash flow.
His final questions, I can take. It's on the balance sheet optimization program, Phase Two. If the $100 million plan unlocking of cash in addition to the cash you have would raise from the financing of unencumbered vessel, just specifying that. Q2, we had a cash balance of $284 million. Into Q3, we bought back the FLEX ENTERPRISE, so she's unencumbered now. Once we refinance her. She was bought back at $137 million, and then we refinance her again with $150 million. The $13 million there is included in the $100 million.
Yeah. Also maybe worth mentioning, because we had this accordion feature on the $375 million loan, where we could add a fourth ship. 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 contract for Enterprise, we can finance even better, you know, $150 million rather than $125 million, and lower margin as well, based on a long-term contract. We are therefore optimizing and not utilizing that accordion feature.
That leads into similar questions regarding our cash balance and our capital allocation strategy going forward. Maybe you can say, what is our capital allocation going forward, and how will we use the cash balance?
Yeah, I will get this question quite a lot, how to spend it, basically. What we see is that, you know, 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. With kind of the fixing now 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 enable us to tap into very attractive debt, both in terms of leverage, margins, duration, and also putting in revolving credit facilities where the cost of having access to this cash is very low.
For example, the recent $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. 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. That's why we are now utilizing our strong balance sheet and credit profile to raise cheap debt, and then we are structuring in a way that it doesn't really cost us a lot of money to carry this debt. Where we are then having the ability to draw credit lines on quick notice, for example, if we find some good opportunities.
In this instance, for this quarter, we have also sent back some of the excess cash to our shareholders through our special dividend. 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.
That leads into a couple of questions regarding our dividend. Can you give any guidance on future extraordinary dividends or alternative uses of excess cash?
Yeah. Okay. We kind of made the decision last year when we had contracted out 9 ships in that period from April to November. We're taking on the risk that we hiked our dividend to $0.75 on a quarterly basis, equating to $3 a year, which we found like a 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. That's why we are sending back a special dividend. We are not gonna guarantee any special dividend. That's why we're calling it a special dividend. You know, 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 will depend now on finalizing the phase two of the balance sheet optimization, where we already started with this $150 million loan, which Knut mentioned. It will depend a bit on market condition. Are we continuing to recontract ships on longer duration? Then also kind of the financial markets as well. You know, actually right now with this kind of strong position, we don't mind volatile financial markets because that can create opportunities for us. So, we're not gonna 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, you know, very healthy dividends. Special dividends will happen from time to time, on and off occasions, I would say.
Okay. 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. It's the trigger now is 5% of the net interest-bearing debt, so it's about $75 million. We have previously guided that we have sort of a management comfort level around $100 million.
Yeah. Also just on the working capital worth mentioning, working capital in LNG shipping is negative. 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. Our working capital requirement is actually negative because we always get paid early, and we pay our bills later on. 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 question regarding new buildings and new building orders. How is your risk-reward assessment of ordering a new building at the current elevated prices? Can the current charter rates defend the investment?
It's a good question. You know, we have shied away from it. Maybe that's wrong now when we see prices approaching $250. Maybe we should have ordered at $220. It's really gone up 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 fairly thin here. We think today it's hard to defend ordering ships at around $250 for delivery in 2027, and that's why we're 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 on more of, the operations and how is the Ukraine crisis impacting supply and demand and your tanker traffic?
You know, Ukraine is not an exporter of LNG. No LNG is exported in that region where you have a conflict today. 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. That is, of course, creating 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 Sakhalin on the east side of Russia. You know, the direct effects on LNG shipping is there's not really any direct effect.
It's indirect through the shutdown of Russian pipeline flows. That's commercial. If you think from the operations view, there is one direct consequence, and that is all the Russian seafarers which is finding it hard to find employment today. Because of the sanctions, we are not able to pay Russian seafarers, so you have a lot of Russian seafarers who are out of job because of this conflict. That's very unfortunate. It makes recruiting harder.
A final question is a bit on the future, but are LNG ships able to transport hydrogen when, in five years, this may be needed?
Yeah. I think you have to wait a lot longer than 5 years, but the simple question is no. We transport a very cold cargo. It's LNG, -162 degrees or -260 Fahrenheit. If you're gonna go to hydrogen, you have to be a lot colder. Liquid hydrogen is -253 degrees, so it's 90 degrees colder. It's only 20 degrees from 0 Kelvin, the absolute coldest you can go in the universe. So this would require a totally different ship. One thing is, of course, the temperature. Another factor is that hydrogen is the smallest molecule in the universe, so this molecule could easily escape kind of piping or the cargo containment system.
Hydrogen is extremely flammable, so, you know, this put some totally different aspect on the safety. You know, there's never really been any accident with the 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. You need, in order to transport the same amount of energy, you need a lot more ships. No, hydrogen is not something we planning to transport on our ships. Whether it's efficient, you know, most of hydrogen is produced from natural gas. Natural gas prices are high. That is also driving up the hydrogen prices because basically hydrogen is converting natural gas to hydrogen in a very inefficient process.
You could also make it, you know, the green hydrogen rather than blue hydrogen, then you would need a lot of electricity in an inefficient process making hydrogen through the Haber-Bosch process or electrolysis. Haber-Bosch is for ammonia. Sorry. If you're doing the electrolysis process, then, you know, if you look at electricity prices here in Europe, you know, this is not really viable today. One of the other ways of transporting hydrogen, which is slightly easier is, as I mentioned, ammonia. 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. It's lethal. It's toxic in terms of corrosion.
Actually, even though it's explosive, it's hard to ignite, so you need a lot of pilot fuel. 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. With the high LNG prices, are Flex vessels fueled by LNG?
Oh, yeah, that's a very good question. Yes. Almost all the time. You know, once we pick up a cargo, we take this super cool cargo on board and, you know, keeping something at -162 degrees Celsius is quite difficult. We have a boil off of around 0.07% on our ships, so it means that every day you're losing 0.07% of the cargo in boil off. We're not losing it. We are using it as propulsion. We are burning this LNG, natural gas, and fueling the ship. It's actually, you know, you're getting into area, if you had a lower boil off, you would have to force it down. 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 heel. Because then you can keep the cargo tanks cold. You can't load LNG into a ship unless it's -1 30 degrees in the cargo tanks. If you are stripping out all the LNG, that, first of all, that will take a lot of time. The import terminals are already congested today, so if all the ships are gonna heel out all this, they are gonna get even bigger bottleneck. Especially in Europe, you don't really have that option today. Let's say you are doing it, let's say you're heeling out because the gas price is so high and you're burning very low sulfur oil on your ballast leg.
That create another problem, and that's the bottleneck on the export plant, because if you are arriving at the export plant with your cargo tanks warm, you need to cool them down. You have to do is 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 - 130 degrees before you can load LNG. This again takes a lot of time. You know, berthing space on these terminals are limited, very. It's not very often that actually people heel out, even though in economics it sounds very good. For most of the time, laden ballast, we burn LNG.
I think we can wrap up the two final questions in one. It's a big topic. What will happen to the steam ships and how will our vessels be impacted by EEXI and CII regulations?
Yeah, 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 steam ships are very inefficient. In all of the shipping segments, steam ships propulsion has gone away for a long time. The new decarbonization rules are gonna push these ships out of the market, but also the high LNG prices, it's not economical to run these ships anymore. That, you know, less ships in the market means usually supply and demand, higher rates for the existing ships, and we will benefit there, as I've also shown with this graph of the term rates given the newbuilding prices. We are fully compliant.
Kind of, as I mentioned, our ships are around 60% more efficient than the steam ships, 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 questions. Thank you for watching and.
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Thank you.