Hi, everybody. I'm Øystein Kalleklev, CEO of Flex LNG. Today, we are presenting our third quarter numbers, and we'll be joined later in the presentation by our CFO, Knut Traaholt, who will walk you through the numbers. Just to remind you, we also will conclude with our Q&A session, and the best question for today's question will win a gift. This time, the Flex LNG thermos, minimize boil- off, and a beanie, which is nice when the winter season is approaching. This is for the Norwegian brand Amundsen named after the Norwegian explorer, who the first guy on South Pole with a nice Flex logo. So please send in questions on the chat function or by email to ir@flexlng.com, and we will cover as many questions as we can at the end of the presentation.
So before we begin, just let me remind you about our disclaimer. We will be giving some forward-looking statements. There are, limits to how much details we can cover, so I would also recommend you, to review the, the earnings release we presented also today. So let's start with the highlights. Revenues came in at $94.6 million for the quarter in the high end of our guidance, $90 million-$95 million . That resulted in strong earnings. Net income, $45.1 million, translating into earnings per share of $0.84. Adjusted numbers, where we are eliminating gains on derivatives, came in at $36.1 million of adjusted net income, translating into $0.60-$0.67 per share. During the quarter, we had all 13 LNG carriers back in operation.
We completed the dry docking program in the first half of the year, with one ship in docking, the first quarter, and then we took out three ships during Q2 for the five-year special survey. That means we are done for the year, and we only have two ships for dry docking next year. So, with all the ships back in operation and a stronger spot market positively impacting Flex Artemis, which is on a variable hire, that is the key reason for revenues growing from the second quarter to the third quarter. The overall LNG market, both freight and product, is balanced with high inventories of gas in Europe prior to the winter season. So, that has also resulted in gas prices coming down to more normalized level from the very high levels we saw last season.
With the stronger spot market, we do expect the revenues to pick up slightly in Q4, with revenues about $97 million-$99 million, also in the high end of the guidance. So with the strong numbers in Q3 and the strong guidance for Q4, we are well on track to meet the financial guidance for the year, $370 million of revenues and adjusted EBITDA of $290 million-$295 million. So with good numbers, a very strong financial position, a completed dry docking program, the board has decided to pay a special dividend of $0.125 on top of the regular $0.75 of dividend.
This gives an attractive yield of $0.875 per share, and if you look at the dividend over the last 12 months, it should give a yield of about 11%, $3.375 in total during the last twelve months. So let's look at the guidance. So we are walking the talk when it comes to our guidance. We are spot on delivering the guidance we provided in Q4 when we reported in February. Revenues are expected to come in at around $370 million, in line with guidance. Adjusted EBITDA, also in line with guidance. And we have also guided the time charter equivalent rates for the year. We have guided about $80,000, and we do expect time charter equivalent earnings on average to come in at about $80,000.
As you might recall, we also did a guidance on docking. We expected 80-100 days of hire in relation to the four dry dockings. We delivered that on 77 days, and then we also guided on the CapEx for the docking, $18 million-$20 million. We did it at $20 million. So also those parameters exactly on the guidance provided. So let's look at the portfolio of ships. We have 13 ships in the portfolio, as I mentioned, all back in operation. 12 of the ships on fixed hire rate, and then as I mentioned, Flex Artemis on a variable hire linked to the spot market rates. First fully open ships we have is 2027. We do have Flex Ranger, fully open end of Q1 2027.
Flex Freedom, there is an option to, for the charterers to keep that ship to 2029. Flex Aurora and Volunteer are firm until 2026, but the charterers has an option to extend those to 2028, which we think is fairly likely. Flex Courageous and Resolute, we do expect the charter to exercise those option and bring those ships into 2029. So the only ships where we see a potential of getting back in the near term is Flex Constellation. That ship is fixed until Q2 next year. Though, the charter has an option to extend that ship by three- or one year. If they declare the three-year option, she will be fully open 2027. Let's see.
We will know when we are presenting of Q4 numbers in February, whether this ship has been extended or not. Flex Artemis, as I mentioned, is on a variable time charter with a minimum period until Q3 2025, but also where the charter has the option to extend that ship and well into 2030. As I will come back to you in the market section, we do think these positions are very attractive when comparing to the overall fleet, supply and demand, and also where new building prices have been heading. Before handing over to Knut, let's review the dividend. $0.67 of adjusted earnings for this quarter, slightly higher for normalized or normal basic earnings.
We are paying then a special dividend on top of the regular $0.75, giving a total dividend for the quarter of $0.875, which gives in total this dividend I mentioned, $3.375 last 12 months. And of course, the decision factors we use in order to determine the appropriate dividend level, we have covered well in the past. Earnings and cash flow is back to dark green. Market outlook, we have downgraded to light green, and this is just a reflection of the fact that next year, 2024, there are more ships than molecules hitting the water, which has softened the term rates the last six months or so. So with that, I hand it over to Knut, and then I will revert with our market update.
Thank you.
Thank you, Øystein. Let's look at the key financial highlights for the quarter. On the revenue side, all 13 vessels were in full operations, and combined with the increased earnings on the variable index charter for the Flex Artemis, the revenues increased by approximately $8 million to $94.6 million. Operating expenses slightly lower this quarter at close to $17 million or $13,100 per day. As we have explained before, the OpEx is a bit bumpy between the quarters, and we have guided OpEx for the full year at $14,500, and we have some expenses that will come in Q4. So we're guiding towards the OpEx per day for the full year of $14,500.
Net interest expenses, which includes $6.7 million in realized gains from our derivative portfolio, came in at close to $21 million and equal to last quarter. Then long-term interest continued to increase in the quarter, and we book unrealized gains of $9 million, which then results into a net income of $45.1 million for the quarter. That gives earnings per share of $0.84. Then adjusting for the unrealized gains, we have adjusted net income of $36.1 million or adjusted earnings per share of $0.67. Looking at the balance sheet, it remains clean and simple.
On the asset side, we have cash of $429 million, and then we have our 13 vessels, more or less sister vessels, with an age of close to four years at a book value of $2.2 billion. As a reminder, these assets are acquired at a low point in the cycle, so they are much lower than the asset values in the market today and the current newbuilding prices. That gives us a book equity of $875 million or 32%. If we look at our funding portfolio, about 50% of that is from long-term leases, and 50% is term loans and RCF from traditional banks.
Netting out the cash we have on balance sheet, we end up with a net debt position of $1.4 billion. If we look at the debt maturity profile, our first maturity is done in 2028, and the combination of this financing gives us a very attractive funding portfolio. We have this $400 million in RCF, which then we can repay in between quarters and save interest rate cost. At the same time, it gives us the optionality to act if there are opportunities in the market.
This quarter, we deep dive a little bit more into our balance sheet, and show here the difference between the debt and our book values and how the debt is repaid much faster than the book values are depreciated. On the balance sheet, we depreciate over 35 years down to a conservative scrap value. And as you see on the right-hand side, the recent retirements in of LNG carriers is closer to 40 years on average. So even the book values are depreciating faster than the economic life of these vessels, and at the same time, the book values are low compared to the current market. However, our funding portfolio, and that is from, particularly from the leasing houses and the traditional banks, they are more conservative, so our debt is then repaid over-...
approximately at age adjusted, the repayment profile of 21 years, and that gives us, we repay this, our debt, to 1.7 x faster than the book values are depreciated. So, we are then saving up about $40 million per year. Our interest rate portfolio now consists of a portfolio of $720 million combined, which net of utilization of the RCF gives us a hedge ratio of about 65% for the next quarters. As you know, we've been quite actively managing this portfolio, and that's how it gives us now a book value on balance sheet of $67.5 million. If we look at the period from January 2021, we have realized and unrealized gains from this portfolio of $128 million.
So we're quite pleased with the exposure we have today and believe that should protect us in this current high interest rate environment. That concludes the financing and back to you, Øystein.
Thank you, Knut. Very efficient. Let's look at the overall market. Volume growth fairly muted this year. In the past, LNG export growth has been typically 7%-8%, but we are in a period now where with lower export growth. I will come back to this a bit later in the presentation. Yeah, about 3% growth year to date through October. Not surprisingly, maybe U.S. is the big contributor to the growth, growing 6.7 million tons out of the 8 million tons, and thus becoming the biggest exporter again, 70 million tons, slightly ahead of Australia and Qatar, the two other big export nations. Russia, despite the war in Ukraine, they are exporting healthy levels, 26 million tons, slightly below the levels last year.
One outlier this year has been Algeria, which has been growing their export rapidly, both the pipeline and LNG, up close to 40% with 11 million tons year to date. Yeah, and then it's about 100 million tons for the rest of the producers. On the import side, European demand this year has been fairly flat. There has been less gas demand in Europe this year compared to previous years. We've seen an uptick in gas demand in Europe in October, first time in a long time we have seen European gas demand picking up.
But again, you know, European demand is quite strong because a lot of Russian pipeline gas, which has been curtailed, need to be replaced with LNG, and European demand year to date is, yeah, 103 million tons, similar to last year. So actually, overall, it's China growing their imports up 12% year to date, with 6 million tons more imported, while Japan, which is firing up their nukes, has reduced their demand by about 10%, leaving room for the Europeans. So I already touched upon it. It's been a lot of supply events the last couple of years. We had the war in Ukraine, of course, which started to curtail Russian pipeline gas to Europe, especially with this happened when we had the explosion of the Nord Stream pipeline.
We also had, like, an explosion on a big U.S. export plant, the Freeport, which sent these two events, sent prices of LNG all the way up to $100 per million BTU, which equates to close to $600 per barrel of oil. Since then, prices have come down a lot, and during the summer, we actually saw the lowest prices on LNG spot LNG that we have seen since summer of 2021, as reported here by Wall Street Journal. Then, during the summer, when prices hit kind of parity with the contracted LNG, which is typically being sold 20%-25% discount to oil, this dotted line called Brent 13%. Then during the summer, we saw bigger outages in Norway. We had a deferred maintenance season for Norwegian gas exports to Europe.
First, this was deferred during COVID because of, you know, difficulties of maintenance during 2020 and 2020 - 2021. Then last year, during the energy crisis, Norwegian maintenance season was deferred again. So the maintenance season for Norwegian pipeline gas export has been very long this year. And we had a big bounce back in Norwegian pipeline gas export to Europe in October after hitting a four-year low in September. So with the Norwegian outages and the fear of threats or fear of strike in Australia, curtailing LNG exports, LNG prices has rallied through the autumn, and are now at around $15, a pretty good premium to the contracted price of LNG.
If you look forward, prices seems to be stabilizing at this kind of level. So if you look at the overall market in terms of prices, gas is still very cheap in U.S. This is the Henry Hub. You do find places like West Texas, where gas is much cheaper than $3 as well. But, you know, this gives very good economics of exporting gas by liquefying it and shipping it to international markets. A big parcel of LNG has a cargo value of $13 million in U.S. If you put the liquefaction cost or the tolling fee as sunk, and then you can make $40 million-$50 million shipping that cargo either to Europe or to Asia, which is a longer route, which then entail more shipping cost.
So even though prices for LNG has come down to more normal levels, they are still elevated, reflecting the tight product market. LNG today at around $15, which is the average of the European and the Asian prices, is equivalent to about $87 per barrel of oil, still a $4 premium to oil price. About 2/3 of the volumes being shipped are linked to oil prices at a discount, and this contract volumes typically shift hands for about $10-$12 per million BTU, i.e., at a discount to the oil prices.
If you look at the drill down to some of the market, as I mentioned, China has been bouncing back in terms of demand after they scrapped their zero-COVID policies, but levels are still below the levels we've seen in 2021, but above the levels we've seen last year at 58 million tons so far. So there are room for further growth in the Chinese demand, but the Chinese demand is typically more price sensitive, and the economic recovery have been somewhat muted compared to maybe expectations. Then on the other big Northeast Asian market, Japan, Korea, Taiwan, it's mostly Japan dragging down demand. The other two key markets, Korea and Taiwan, are fairly flat, but with the startup of more nuclear power in Japan, they can shy away from buying quite expensive LNG.
Looking at Europe, which has been the big buyer of spot LNG the last couple of years, we are at a level similar to last year, but well ahead of the levels we saw in 2021 prior to the curtailment of Russian pipeline gas to Europe. But with muted gas demand in Europe, we have seen now inventory levels hitting about 99.5% full. Before now, we really starting the big consumption season during the winter season. And it's worth noting that also, Ukraine has allowed the European buyers to utilize about half of the gas storage levels in Ukraine, 15 billion cubic meters.
So far, only a fraction of this has been utilized, so there is still room to store more gas in Europe if the Ukraine storage levels are utilized. Looking at floating storage, typically when you have tank tops or where you have a situation where gas is more expensive in the future than today, we do see a build-up of floating storage on ships, and this has become quite usual during the early winter season. And we actually saw it this season as well, a rapid build-up in floating storage with the prompt prices reacting positively, you know, prompt prices going up because of the Norwegian maintenance season and the fear of a strike in Australia.
The economics of floating storage have gone down, and we have now see a reduction in the numbers of ships floating with cargoes. And of course, this is also releasing more ships to the market. So, we have had, when we have seen this dip in floating storage, we also seen a dip in the spot prices, but they have bounced back, and the spot rates are at very good levels. We are talking spot rates for modern tonnage at around $200,000 per day, and they are acting in accordance with the seasonal pattern, where you have higher rates in the winter season.
We have made this scale on the left-hand side in logarithmic scale, so it seems like it's not far away from the numbers we've seen last year, but actually, they are about half the levels as we saw record rates last season, with rates hitting about $500,000 per day. The forward line or the dotted line is the forward prices for freight for the rest of the year, so we do expect rates to stay at this elevated level for the remainder of the year.
Despite the fact that we have seen a fairly low ton mileage this year, on the right-hand side, on the top graph here, you do see the average sailing distance, which is, you know, fairly low, you know, reflecting the fact that Europe is buying a lot of the spot cargoes compared to 2021. Also worth noting, fixture activity has gone down. The term market has been active. A lot of the charterers have been fixing ships on term contracts in order to take advantage of the incredible cargo economics which are still attractive today, even though spot LNG prices have come down.
With all the charterers being fairly long shipping, there are less spot fixtures in the market, as you can see here on the graph on the right-hand side, in the bottom. And also maybe worth mentioning also that a lot of the fixture, or actually most of the fixtures being done, are being done by charterers, not independent owners, as the independent owners have more or less left the spot market today. So, let's look at the term market where we are exposed, as new building prices have been picking up and now stabilizing at very high levels, about $265 million for a new building today. This has also pushed up the term rates in tandem with higher interest rates.
With higher interest rate and higher investment, in order to build a new ship, you need higher term rates, and 10-year term rates has stabilized at around $100,000 per day. We, as I mentioned earlier in the presentation, we have guided $80,000 for this year. So we do think that there are opportunity to fix our ships when they are coming off charter at higher levels. The five-year rate, it's about $115,000 per day. So look at the outlook for the product market. We are in a period now, as I also mentioned in the beginning, with muted export growth.
We had a wave of volumes coming to the market from 2016 - 2019, predominantly big projects in Australia and big project in U.S., enabled by the shale revolution. Then, with the trade war breaking out between U.S. and China, and then once that was resolved, more or less in January 2020, we had COVID for an extended period, and that has impacted people's ability to sanction new volumes. So once we came out of COVID, we have seen a flurry of new projects, and these projects typically take some time to come to market.
So we do expect the new wave of LNG export growth to start from about next year, 2024, but the real growth we are not really seeing before 2025, 2026 and onwards, when a lot of new volumes, including U.S. volumes and including the big expansion in Qatar, is coming to the market, and that will drive a lot of demand for shipping, which is the next topic and the last topic I will cover. So if we look at where are we in terms of supply and demand, this is always a very difficult calculation. We have made our own model, but this model here is based on a recent model from Affinity. There is about 300 ships under construction today.
It's a massive number, but as I shown on the last graph, there's also a massive amount of new LNG coming to the market, especially from 2025, 2026 onwards. So how will this market balance out? We do see next year, volume growth in terms of exports are quite muted, while there will be a lot of ships in the market. There's also more export growth coming to the market in 2025, but there's also a lot of ships. In addition, it's worth noting that about 200 of the ships in the fleet today are old steam turbine-propelled ships, which are too small and very inefficient. As we have shown in our presentation in the past, about 100 steam ships are coming off charterers by 2027.
So these are ships that have been fixed, typically 20-25-year contracts, and once they are rolling off those contracts, the charterers will typically not extend those ships because of the inefficiency of the ships. So this means that we have a line here, the blue top, upper line, which is the shipping balance if all ships continue to trade. Then it's reasonable to assume that some of the steamships will leave the market. It's because they are coming off charter. It's also because of the decarbonization rules which have come in, in force, and there are also new decarbonization rules coming into force from January next year, which is the EU ETS, which is a carbon tax for shipping. So all of these drivers will drive scrapping up. And then it's a question, how much scrapping will pick up?
As Knut shown in his graph earlier today, average scrapping age is 40. We do think that number will come down a bit. The dotted line here is that eventually, you'd scrap 25% of the steam fleet, but eventually, by 2030, I think most of the steamships have left the market. The green line is basically reducing the 100 ships coming off charter by 2027. You know, if you look at our portfolio of ships, we have two ships fully open in 2027, Q1 and Q2, and then the last next two ships coming fully open is Q2, 2028.
When you look at the shipping balance, the export growth, the numbers of ships, and then adjust for sailing distance and scrapping, we do see that this market will be a bit loose, the 2024, 2025, and then starting to tighten in 2026 and becoming increasingly tight from 2027 and 2028, which I think will give us a good opportunity to fix ships for longer contract duration at higher levels than we have today, as evident from the term rates. So with that, I think we conclude with a summary of the highlights. Revenues, as I mentioned, came in high end of the guidance, $94.6 million, giving us $45.1 million of net income or $0.84 per share.
Adjust numbers for where we adjust all these unrealized gains on derivatives Knut talked about, $36.1 million or $0.67 per share. As I mentioned again, all our ships are back in operation. We will only have two ships for dry docking next year. The stronger spot market will impact Flex Artemis positively, not only in Q3, but also in Q4. So we are guiding even stronger numbers for Q4, with revenues of $97 million-$99 million, which means that we are well positioned to deliver on our guidance. Then we will come provide you with a new guidance when we are reporting Q4 numbers in February.
With a good financial position, strong numbers, we are glad to once again provide a special dividend of $0.125 on top of the regular $0.75, which I hope give you a very attractive return being invested in Flex LNG. So with that, I think we conclude the presentation, and we pick up with some questions, Knut. So let's see what we have of questions from the audience. Thank you. Okay, let's see what we have of question, Knut.
Yes.
Who should we start with?
Again, thank you for all the questions, and I think we, as before, we start off with a question from Omar Nokta from Jefferies.
Yeah.
What's driving the divergence between the time charter rates and the spot rates? It appears to be moving in different directions over the past seven weeks.
Yeah, they've been living separate lives, but there are good reasons for this. Spot rates are for us, you know, usually a single voyage and, you know, we are entering into this winter season. Product prices are conducive for freight. So, you know, you usually do see that spot rates are high at this time of the year. Term market is more about future expectation for, you know, whether it's the next 12 months or three years or five year s. So that is more driven by the outlook. The outlook for the rest of the year is, you know, pretty good, with rates at around $200,000. If you are fixing a ship now on a one-year time charter, you basically are fixing for next year.
Recent fixtures or recent quotations for 12 months is at about $100,000, which, you know, historically, it's a fantastic number. But of course, it's been sliding, and it's been sliding because, you know, people do see that there are a lot of ships for delivery next year. There are less molecules hitting the water, so it's a bit softer. It's also driven by LNG prices and modern tonnage is more efficient than older ships. So, you know, if $100,000 is the right rate for a modern tonnage, it's less for older type of ships. But again, this is also driven. The spreads are driven by where the LNG prices are. And right now, today, $15 is quite conducive for modern tonnage.
It's of course much less for an old steamship, which is consuming about 60% more fuel in order to move the same amount of cargo. If you go further down the road, you know, you have five-year time charterers, 10-year charterers. We don't really see many people fixing 10 years prompt. So when people are fixing a ship prompt, it's mostly one to three years years. Last year, when we fixed a lot of ships, it was more prompt interest for longer term. We have seen declining interest for term the last five to six months. So there are fewer of those fixtures. But you know, still $100,000, it's good level.
We do expect the usual seasonal pattern, where spot markets are peaking prior to peak winter season, and then that we do see a decline in the spot rates when we're getting into early next year. This is usually also a result of the fact that typically a lot of new building deliveries are skewed towards the beginning of the year, where they get the next year vintage, and then increased availability of ships in the market. So I do think when we do have the Q4 report in February, term rates are probably higher than spot rates.
Mm-hmm. And there's a follow-up question. So touching upon it, and then it's about how liquid is the time charter market between the different durations, so one year, three year, five year-
Hmm
... and also up to 10 year?
Yeah. I think this is sometimes a question we get, and people do think that this term market is very liquid. It's not. It was very liquid, unusually liquid last year when we did the 10-year rather prompt on Rainbow, and then seven-year charterers for Enterprise and Amber. And then we also fixed three ships with Cheniere for a longer duration. It was the term market was fairly liquid until the summer, and it's been less liquid since. Once the spot rates come down from the, you know, elevated levels, you know, if you can fix a ship for $100,000 for 12 months, you might rather do that than fix a ship for five years at $110,000. You rather roll the spot market. So it's become significantly less liquid.
Fearnleys had a LNG report from Q3, where they actually have a graph on the number of term deals up to three or five years, I can't remember, but where we've seen a pretty big decline in term deals being done. However, you know, if rates get competitive enough, you will probably see a pickup in activity.
Then there is a couple of questions on the Panama Canal and the situation around there. Can you update those? What's the status with the Panama Canal?
Yeah, it has been a very exciting day. But, you know, I maybe I should start from the beginning to just give you a description of what's happening in Panama. So in 2009, they, the Panama authorities decided to expand the canal. And the reason for this was due to the increase in container traffic, especially between China and U.S. China became a member of, World Trade Organization, December 2001, and we saw a rapid increase in trade. And then we also saw a new class of container ships with a wider beam, which could then carry a lot more containers than the older type of ships. So this was called now the Neo-Panamax, typically around 14,000 TEU. So they expanded the canal in order to facilitate more container traffic.
And once the canal opened, eventually, they've been gradually able to increase capacity in the canal for both the Neo-Panamax slot and the older canal, to about 40 transits a day. Usually, they operate with 36 ships, but, you know, at peak season, 40 daily transits a day. Typically the new big ships, these are ships which has a beam of less than 50 meters, which includes the LNG ships, but it's wider than 32 meters. These ships, they're usually. It's about 10 transits of these kind of Neo-Panamax ships every day. However, when they made the decision to expand the canal in 2009, U.S. was a big importer of gas.
Today, U.S. is the biggest LNG exporter in the world, and by far, the biggest exporter of LPG. This means that, you know, when they expanded the canal, they never foresee that suddenly U.S. would be this huge exporter. So we always had a, you know, every year, the canal has become more and more clogged because of this, you know, the growth in trade, basically from U.S. Both container, but also then LNG and LPG. So what has happened this year with El Niño, it's been a drought, and, the canal is fed by a water source called Gatun Lake. And when the, when there's less rainfall, this is a very wet place. Usually, it's about 200 days of rainfall every year.
When it's been less rainfall this year, there's not been enough water. Because every time you put a ship through the canal, this is like a water elevator. You put the ship through the canal, and you are lifted above water level, and then down again. So every time one ship goes through, it's like 50 million gallons of water being lost to the sea, which is almost 200 million liters of water. So you consume a lot of water. Actually, you consume, I believe, it's like the canal consume 4.5 times more water than the entire population of Panama, and this is freshwater, so it's not...
So, with the drought now, Panama has restricted the numbers of daily transits, first from 36 to 32, and now, last week, there were further restriction where this daily allowance will go down to 18 by February. So this means there will be a lot less space and ships, especially LNG and LPG ships, need to find different routes. So if you're exporting out of U.S., you might rather go maybe through Suez or Cape of Good Hope in order to carry your cargo to a destination, which typically is Asia. So the container ships are the ones who are paying the most, and that's why they get better access, and then there's less room for the LNG and LPG ships.
So now recently, the canal has stopped auctions for a week, and they restarted it today, and not surprisingly, we smashed all records today. So the price for a kind of spot slot in Panama today reached $3.975 million. So almost $4 million in order to get a spot auction slot in Panama. On top of that, you also have to pay the regular transit fee. So you're getting close to $4.5 million to use the canal. So that is pricing out a lot of ships, including LNG ships from the canal, and that's why you see a lot of increase in sailing distances for both LNG and LPG ships. For us, Flex, we have all our ships on time charter.
This means that we are basically the Uber driver for our clients. They tell us where to go. If they go through a tolling station, they pay for the tolling station. They instruct where we go. So if they choose to utilize the Panama Canal, it will be for their account, not ours. We get a daily hire, and then they pay all the costs associated with the trade, this being the Panama Canal duties, port duties, or next year, the EU carbon taxation.
Okay, and then, a final question on the market and the market rates. Anders Westin asks, "The five-year term rates is at $115,000 per day versus the 10-year at about $100,000 per day, which basically imply that the time charter rate in the future for between six and 10 is about $85,000 per day." So, this is the opposite of our assumption of the tightening market from 2028.
Yeah, it's a, it's a good question.
Does the market believe that the steamships won't be scrapped, or does it imply more new builds? Or is there a third factor?
I think it's mostly the third factor because there's very few deals done prompt at 10 years. We did it with Flex Rainbow last year, but except for that, I don't really have seen those kind of deals being done. So the 10-year charter rate is mostly for new buildings. So people are putting down $265 million to build a new ship. They get the ship end 2027, early 2028, so it's a pretty long lead time. So the cost when you are taking into the time-only of value of that ship is approaching $300 million. So when you make such a sizable investment, you want to have some security of cash flow. So that's why typically owners, they are asking to get a 10-year charter in order to make such an investment.
So the 10-year rate is more a reflection of the tender market with ships for forward delivery. The five-year rates is more for a prompt delivery, which reflect what people do expect, the rates to be over the next five years, while the 10-year time charter rate is more where people believe the rates would be from 2027 - 2037. So, it's a bit comparing apples and bananas.
Okay. Moving over to Flex and business development. Anders Petersen says that there's an active M&A environment in shipping, and how is Flex management interested or currently seeking out business for consolidation opportunities?
Yeah, I think we said this in the past. In shipping, there are quite a lot of S&P transactions. It's a bit different for LNG, usually more industrial owners, so there are fewer transactions. Although that said, there's been more transactions in LNG shipping the last 18 months than there's been or maybe 24 months than there's been in probably the history of LNG shipping industry. So, we do participate in transactions that happens. We do see them on the radar. We sometimes put in bids, and we are happy to consolidate the business. We have a good setup. We can expand our fleet without adding much costs. But, you know, we also have to pay the right price. You have to find the right asset, and then you have to pay the right price.
So we are looking at that. We're, of course, always exploring the yard market for new builds. We've seen the prices becoming a bit elevated. And given the fact we have, as I shown in the presentation, four ships open, two in 2027, two in 2028. We, as others, stayed focused on fixing those ships for longer term contracts rather than adding more ships on top of that. But that said, we are open for consolidation. If we find owners with the right assets and the right attitude, we're happy to consolidate and be part of our bigger story.
The alternative growth is through new buildings. Ms. Raduan from lngprime.com says the Qatar Energy plans to book more than 100 LNG carriers at yards in South Korea and China. What is Flex? How are we viewing this? When will Flex book its fourteenth, fifteenth?
Yeah, I think time flies, but I think we had a slide on the Qatar order. I think it must be more than two years ago. So if you look through our slide deck, we had a calculation where we said, "This is..." As I mentioned some time ago, we said, "Qatar will probably order more than 100 ships." And because we had a lot of banks worried about this, you know, are they gonna build too many ships and add too much supply to the market? But there are good reasons for the Qatar making such big investments. Altogether, they reserved 151 berths at three Korean yards and one Chinese yard, Hudong. And the reason for this, number one, they are expanding their export capacity by 49 million tons.
So depending on trade pattern, you probably need 70-80, maybe even more than that, ships just to cover the new volumes. Then they do have about 25 steam ships, which probably will be replaced when they are coming off charter. So then you are at least at around 100 ships. And then they do have, which I didn't touch upon on this graph, where we have the supply and demand. We just stayed focused on the steamships because it's easier to simplify with that. But, you know, they have 45 slow speed diesel ships, which are LNG carriers that cannot burn LNG.
So these ships are burning marine diesel, which is quite costly when you have cheap LNG from the liquefaction plant, and they are consuming a lot of power in order to reliquefy all the boil-off gas. So eventually, these ships might also be considered scrapping candidates, and these are huge ships, ranging from 216,000 cubic to 265,000. So I think that explains why they are ordering so many ships. We are not participating in the Qatar tender. We have looked at it, but, you know, we rather focus on our own ships, and if there are good opportunities, we will act on them.
We have the necessary financial resources to add ships, but we are always focused on having the right capital discipline. Making sure we can pay good dividends to the investors who are investing in our company, and not trying to just build a big fleet in order to satisfy our growth ambitions. Our ambition is to deliver the best possible shareholder return.
... And you mentioned capital discipline and paying dividends. A couple of questions around the dividend policy and how to foresee or expect special dividends?
Yeah. Yeah, you know, we tried to simplify our dividend policy, even with some decision factors and, and, and green and lights. You know, basically, we are paying out everything we are earning. Actually, lately, we have been paying out slightly more than we have been earning, because we have a substantial cash balance. Knut did a good job in last year when we did the balance sheet optimization program, when we released $387 million of cash from that program, which kind of enable us to pay back some of the capital in addition to also the return on capital. So return of capital as well as return on capital.
Because if you look at our balance sheet today, it's, it's packed with cash, and also actually the net leverage of our fleet is very low compared to peers. I saw Pareto had a comment on it today. We have net leverage on our ships of $108 million per ship. When you compare that to the market value of the ships, you get to a very low leverage. So, so, so we do think that it's, it's fair for us to return some of that cash. And then the cash we keep, we're not just sitting on that money in the bank. As Knut mentioned, we do have a $400 million revolver, which we can utilize on short notice, where we can pay that back.
Rather than paying the bank our credit margin on top of the interest rate, we can pay a commitment fee of only 0.7% per annum, which gives us a lot of cash optionality. So you can expect the dividend policy to remain the same, where we are paying back very substantial dividends based on our healthy earnings and also our sound financial position.
Okay, that wraps up the Q&A session. So question is,
Yeah-
Who is winning?
Who is winning the thermos and, you know, this nice beanie? It's getting cold here in Oslo, so I think we're gonna send this to you, Omar, since you are always coming up with questions for our Q&A session. So once it gets cold in New York, you—I hope you will do some promotion for us. Okay? Thank you, everybody, for listening in. We will be back in February for our Q4 numbers, where we also will provide a guidance for 2024. Thank you.
Thank you.