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EARNINGS CALL TRANSCRIPT
EARNINGS CALL TRANSCRIPT 2021 - Q1
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Operator

Good Day and thank you for standing by. Welcome to Flex LNG First Quarter 2021 Earnings Presentation Conference Call. At this time all participants are in a listen-only mode. After the speaker's presentation, there would be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded.

[Operator Instructions]. I would now like to turn the conference over to your speaker today, Øystein Kalleklev. Please go ahead..

Øystein Kalleklev

Thank you and welcome to today's Flex LNG’s webcast, I am glad you could make it. I am Øystein Kalleklev, the CEO of Flex LNG Management. I will be joined today by our new CFO, Knut Traaholt, who will walk you through the numbers as well as providing our financial updates, update later on. We will be presenting the first quarter of the Sales for 2021.

And this is a presentation we have been looking forward to share with you. Please also note that the replay of this webcast will be available@flexlng.com and also on the Flex LNG YouTube channel. So, Slide #2 is a Disclaimer.

Before we start the presentation, I will remind you of the disclaimer with regard to among others forward-looking statements, non-GAAP measures and completeness of details. And the full disclaimer is available in the presentation, and we recommend that the presentation is read together with the earnings report we also released today.

So let's kick off on slide #3, the Highlights. The LNG market has been remarkably strong this year. We started off with a boom at the start of the year with both LNG product prices and freight rates going sky high. However, it's fair to say that these rate high levels reflect the market more or less sold out for both cargoes and ships.

So only a few cargoes and spot voyages were able to catch these levels. And this is also basically economics. When something is scarce, it tends to be expensive, if in high demand, with limited price elasticity and substitution.

So the market cooled off by mid-February driven by warmer winter in Asia, a flurry of new building deliveries at the start of the year, as well as the disruptions in U.S. due to the big fees in February.

The market, however quickly rebounded by end of March and the quick turnaround also increase appetite by charters for term deals; nobody really wants to be short chipping after the experience from last winter, particularly given the low gas inventories, which increases the odds for winter volatility this next season.

We have utilized a strong market to execute on our strategy of securing a higher degree of employment visibility and thus re-risking the Company's freight exposure with about 22 years of minimum fixed hire employment secured since last reporting and these charters are done at attractive levels and I will cover this in more detail shortly.

In 2019 and 2020, we had a multitude of factors playing against this strategy, being the trade war between U.S. and Cheniere, two record war windows in a row, adversely impacting gas demand and then finally the COVID-19 pandemic rampaging the world economy and thus also the energy demand.

This also included LNG demand, even though LNG in contrast to nearly all other energy sources ordered a small increase in demand of about 1% in 2020, but this fell well below our expectations of about 7%.

However, this year we will catch up a lot of this cult with 7% to 8% growth expected as we do not expect cargo cancellation this summer, given the strong demand growth.

With the world economy set to go healthy this year and as cold winter, which has bragged on gas inventories, the LNG market has rebalanced and freight rates have thus strongly bounced back.

During the quarter, we took delivery of two more ships being Flex Freedom and Flex Volunteer and we will have completed $2.5 billion investment program with Flex Vigilant set for delivery by end of May. So by end of the May, we will have 13 state of the art LNG carriers on the water.

Despite the challenges imposed by COVID-19, when it comes to true changes inspections and services, we have continued to operate our ships with excellent safety and operational performance. While LTI-Lost Time Injury was 0, 0, 0 in 2018, 2019 and 2020. That is actually a high for us. We recently had a small injury.

So the LTI frequency which is injuries per million hour work loss to almost is currently 0.09. All of this is way below the industry standard. We intend to bring this back to zero again. I'm also pleased to say that only 2% of our troop is currently overdue on the contract which compares very favorable to the rest of the industry.

So once again a great thanks to our sea fellows and onshore personnel for making the propeller run. Our technical team has more than 200 years of experience so are not new to shipping. Our top management consisting of [ph] Fergus, Ben, Marius and myself, have also worked in shipping and LNG for most of our carriers.

James Ayers actually made me aware today that Flex LNG is the only shipping company in his research.-coverage with a straight A-rating for management. In terms of financials, I am pleased that we did deliver revenues of $81.3 million in-line with guidance of $80 million to $90 million when we reported on February 17.

At the time of the posting we have 13% of remaining days to be booked as well as three ships on valuable hire contract linked to the spot market rates. The markets are can all start from the middle of February until the end of March for reasons already described and this is why we ended up in the lower end of the guidance range.

Nevertheless we deliver the TCE of 75,400 in first quarter slightly ahead of 73,700 in fourth quarter. This resulted in an adjusted net income for the first quarter of $34.2 million or $0.64 per share.

As long-term interest rates rebounded in 2021 driven by improved economic outlook, we booked our $13 million gain on our interest rate swaps utilized for hedging and our operational net income was therefore $47.2 million for the quarter translating into $0.88 per share.

As you might recall, our official turning number last year, were bragged down by unrealized losses on such derivatives due to its limiting long-term interest rate. But we see a reverse losses now as the world is recovering gradually from the pandemic.

It's also worth reminding you all that we have secured long-term effective financing for all our ships including Flex Vigilant set for delivery by end of the month. And we also have a super strong liquidity position with $139 million of cash-at-hand at the end of first quarter.

This healthy financial situation coupled with a strong contract coverage gives us ample room to pay an attractive dividend and also potentially buy back more of our stock. Hence we are therefore pleased to announce an interest in the dividend from $0.30 of our fourth quarter to $0.40 per share for the first the quarter.

With current stock price of around $13, I believe it's a bit tough today, this translates into an annualized yield of about 12% which should be attractive in the current low interest rate environment.

Our stock is still trading below the value of about $16 per share, our book of balance-sheet consists of brand new ships on the water, acquire that at active prices compared to today's new billing prices which are going up. Additionally all our ships are effectively financed and today the ships comes with an attractive catalogue as well.

Thus we still find it attractive to buy-back our stock. During the first quarter we therefore bought back 593,000 shares representing about $0.10 per share bringing the total to 800,000 shares bought back.

The board has therefore decided to increase the capital under the buyback program from $12 to $14 per share which is still approximately 12% discount to book value. Slide #4, So in Flex LNG, "We Don't Execute, We Flexecute". As mentioned in the highlights section, the LNG market has recovered and rebalanced.

The Asian and European spot LNG or gas prices JKM and TTF, which fell below $2 and $1 at nadir of rose the COVID-19 pandemic on all at around $10 and $9. It is 5 to 9 times higher than last year at this time of the year, as done also in historical perspective for this time of year.

With better market, there also been better opportunities for us to carry out our intended strategy of fixing our model ships on longer term context. When we expanded our fleets in 2018, from 6 to 30 ships, we also took the decision to recruit and build up our top-notch in-house technical management.

Flex LNG fleet management, received this private license or document of aaaxcompliance as it's called in shipping about a year later in October, 2019 and during the end of 2019 and into 2020, we gradually took over the management of all our ships in-House.

Having the ships in-house means we are more in control of how we operate those ships and this should in our view, as we have said before, fit us in a better position to affect long return contract as major LNG trader and to prefer owners with in-house organization, given the mission critical in nature of LNG ships in the LNG value-chain.

However long-term contract doesn't just arrive at the doorstep. Charters want to see the organization actually delivering great performance and this we have certainly evidenced through the stress test imposed by COVID-19.

We also took the prudent decision to finance the company with ample equity and flexible long-term financing for all ships, to be able to pay those ships spot and order pick the right moment to execute on our strategy when the time was right and 2020 was certainly not right year to fix ships on long-term fixed hire contract, given the upheaval in the market.

So during the last month or so we have fixed 6, possibly 7 of our ships on effective term employment. On April 14, we announced an agreement with Cheniere to fix three ships in 2021 with them and one or possibly two ships in 2022. Flex Vigilance will be delivered to Cheniere on a payer contract except end of the month.

Flex Endeavor has already commenced the charter with Cheniere as we agreed early delivery of this vessel with the charter duration, thus expanding to about 3.7 to 5 years, minimum duration. We also plan to deliver Flex Ranger a three and a half year contract to Cheniere in third quarter.

Next year, Cheniere will take one or two of our ships, this also on a 3.5 years time charters. These vessels will be nominated ahead of delivery. So it's still not sure which vessel will be delivered to Cheniere and our agreement, the charter also have the option to extend all vessels by aptitude additional years.

Then on 17th of May, we agreed a three year time charter for Flex Constellation with our major trading house. The time charter was paced ass top delivery. So Flex Constellation has already commenced this charter. Under this agreement, the charter also has the option to extend the charter by up to three additional years.

And lastly, last night on May 20th, we agreed to fix Flex Freedom on three four five-year time charter with the portfolio player with commencement of this contract in direct continuation of existing time charter elapsing in first or early part of second quarter of 2022.

We will be notified in advance whether it will be three or five-year minimum term provided period and such notification is due in third quarter this year. The charter will also have the option to extend this contract by two additional years. This time charter remains subject to final documentation and customary closing conditions.

So slide#5 Fleet Composition. So let's have a look at the fleet composition after the reason flurry of flexecution. In total, since reporting in February, we have added 22 years of firm backlog to our fleet with upto an additional 20.5 years of optional backlog. Hence our earning visibility has been transformed as a consequence of these fixtures.

Today, we have three ships linked to the spot markets with valuable hire contract. These are Flex Enterprize, which has shown her third year of a valuable hire contract with long contract coverage until end of first quarter next year. That's where the charter has the option to extend her by another two years.

Flex Amber is on a similar contract into Q4 by the charter can also extend by two additional years .Last, the vessel on variable higher is Flex Artemis, which we secured on a minimum five-year contract with Gunville at the end of 2019 with commencement of charter in connection with delivery of the ship in August last year.

Gunville has the option to extend this contract by up to five additional years. When no process substancial part of our fleet on long-term fixed hire contract as mentioned Flex Freedom is currently fixed on a 10 month time charter maturing in end of Q1 next year with a fleet of five-year time charter in direct co-ordination with a portfolio player.

Flex Constellation was recently fixed on a three year the time charter with a major trading house. Then we have Flex Endeavor, which has already commenced her 3.7 to 5 years Charter with Cheniere with Flex Vigilance set to join her on May 31st and Flex Ranger during third quarter.

Then Cheniere will take one of possibly two ships on three and a half year time charter in third quarter next year. Hence we can pick and choose from our existing ships. But for simplicity, we have included Flex Courageous and Flex Aurora as optional and Flex Aurora as the optional ship for the Cheniere contract.

Flex Courageous is currently on an 11 month fixed time charter and will be redelivered to us at the end of Q1 next year. Flex Aurora is also fixed on a fixed hire time charter where the charter has the option to extend these ships for an additional six months, taking her into Q1 next year.

Flex Resolute is also on a similar contract where the three months extension option was recently declared but where the charter can extend by another three months. In any case these three positions are very attractive, so we would be perfectly fine trading these two ships in the spot market in case they are not extended.

Then we have Flex Rainbow, which is fixed on a 12 month time charter in Q1 this year with redelivery in Q1 next year, where the charter has the option to extend by another year into Q1 2023. And lastly, we have one ship remaining in the spot market today, Flex Volunteer, which is fixed into Q3.

Given the positive outlook, we are very happy it's trading out in the spot market. So slide #6, the backlog. So let's talk about visibility as we have secured substantial backlog during the last month or so of all the earnings visibility; has also increased substantially with a minimum of 88% of the remaining days in Q2, Q3 and Q4 quarter.

As mentioned on last slide, we only have one ship Flex Volunteer sliding in the spot market with the possibility of having also Flex Aurora and Flex Resolute redelivered in Q3 or Q4 this year. But again, as I mentioned, these are what a good position we would be happy trading spots as the period also coincide with the winter market.

We also have three ships linked to the spot market to the valuable hire contract. So we are exposed to the spot market through these four possibility up to six ships while the rest of the feet are on fixed hire contracts. This means we can fairly, accurately predict the revenues for the Company for the rest of the year under normal operations.

As we have been in investment phase through 2018 to second quarter this year, we have incrementally gone on fleet of ships on the water during this period. We started up 2019 with four ships on the water and close the year with 6 ships on the water.

During 2020 we added another four ships on the water, while we are adding the remaining three ships to our fleet in 2021, hence it should not come as a surprise that our revenues are growing. This also means that finally, all the equity invested in the Company is being employed in productive assets.

As in the past a substantial part of our equity has been tied up in vessels, under construction, which turns off zero. Second quarter is normally the weakest quarter in the year. And this, we also expect to be the case this year with around $65 million of assumed revenues for this quarter. The quarter is fully booked.

So the unknown factor is the earnings we will be making under the three valuable hire contracts in our portfolio.

In third quarter, we have also a high booking, so valuation has mostly linked to spot earnings for Volunteer and their earnings under the valuable hire contracts but we expect revenues to bounce-back to the level of Q1 as you can see from the graph.

For fourth quarter, which tends to be the strongest quarter, although this year Q1 was slightly stronger than Q4, we also have a high degree of days cover that's mentioned but we expect covenants to go close to the $100 million for this quarter.

As we have had three shifts for delivery in the first half of the year with Flex Vigilant set for delivery by end of May, we also have no more CapEx commitment in the second half of the year hence cash-flow available for distribution to shareholders, will therefore also be higher.

So, next slide #7, so just to give us summarize before the handing over to Knut. As I mentioned in the past, we have the industry low cashback even of around $45,000. As you can see, from what I've described, we have substantial backlog, not only in 2021, but also for 2022, 2023 and 2024.

This gives us affluent to pay out dividends as mentioned; our earnings adjusted earnings per share in the first quarter was $0.64. We were paying out $0.40 as dividends. We have both fixed shifts for around $5.50 million bringing the distribution to $0.10 per share. And then we also had two shifts for delivery.

So kind of the payments to the all that was around $0.12 for those two ships, but given, the COVID you know, we have added some extra space to the ships, usually when you take delivery of a ship, you are using around $2 million for staff space and stores, we have more been more like $3 million each of these ships.

So these are kind of CapEx which are invested in space for the ships, because it can be hard to get space these days. So we have a pay-off ratio of the free cash flow in excess of 100%. But you know, this is a very coupled with $139 million of free liquidity. Now that maturity is before second half of 2024. And the strong balance sheet I mentioned.

So then maybe you Knut go through the financials..

Knut Traaholt Principal Financial Officer

Thank you. Øystein,let's turn to slide 8 and the income statement. Revenues for the quarter came in at $81.3 million in-line with our guidance for the quarter of $80 million to $90 million. This is up from $67.4 million in the previous quarter.

The increase is due to the delivery of the new buildings, Flex Freedom and Flex Volunteer in January and a slightly improved market with the fleet delivering a TCE right for the quarter of 75,400 per day, up from 73,700 per day in the previous quarter.

Operating expenses were $14.3 million in the first quarter, compared to $14.5 million in the fourth quarter, despite that we had a larger fleet this quarter. This resulted in an opex per day or a 12.9 -- 12,900 per day versus 15,300 per day in the last quarter. The difference is explained by higher COVID related expenses in Q4.

And despite the positive reduction in the operating expenses, we continue to face higher COVID related expenses caused by challenging crew changes in quarantine, increased lube oil prices and additional cost of transporting space and services to our vessels.

These costs can be a bit pumpy as illustrated in Q4, but we are now back to a normalized level in Q1 and we expect smoother opex, once the restrictions are gradually lifted. Adjusted EBITDA for the quarter was $64 million up from $50.2 million in the previous quarter.

Interest expenses were up in Q1 due to a full quarter of interest on the depths related to the vessels delivered during the fourth quarter and a full quarter of interest related to Flex Freedom and Volunteer delivered in January.

Net income for the quarter was $47.2 million or $0.88 per share up from about $28 million or $0.48 per share in the previous quarter. Adjusted net income was $34 million or $0.64 per share up from $24 million or $0.45 per share in the previous quarter.

The difference between earnings per share and adjusted earnings per share is as Øystein explained related to our interest rates hedging where we recorded net gain of $13 million in Q1 due to long-term interest rates bouncing back, but we used the adjusted numbers to smooth out this mark to mark change of the interest rate instrument.

Then moving to slide 9 and our balance sheet; at 31st of March, we had full vessels in operation and booked as vessels and equipment. During the quarter, we took delivery of two new buildings and added $372.5 million from the vessel prepayments to vessels and equipment.

Increasing in aggregate book value of the vessels to $2.2 billion; we have $64 million as remaining vessel prepayment relating to our last new building, Flex Vigilant. She is scheduled to be delivered on the 31st of May to our fleet.

As mentioned previously, once all ships are delivered, our balance sheet will be about $2.5 billion comprising of 13 ships as well as our substantial cash holdings. Total interest paying debts stood at $1.4 billion at the quarter end reflecting $20 million increase of the [ph] RCF under the original $100 million ranger facility.

And adding draw down of $125 million in connection with the digital delivery of Flex Volunteer and offset by $20 million in scheduled repayments. At the quarter end, we had a strong cash position at $139 million. Total book equity was $861 million giving a solid equity ratio of 35% compared to our 25% requirement under some of our loans.

Turning to slide 10 and looking at the cash flow for the first quarter. In the first quarter, we had a positive net cash flow of $10 million. This comes from cash flow from operations of $48.4 million. And we had negative working capital adjustment of $4.5 million compared to a positive working capital adjustment of $14.4 million in the fourth quarter.

The adjustment is mainly related to higher prepaid charter hire due to a stronger market at the end of the fourth quarter, compared with the third quarter.

On average, these working capital balances tend to even out, but as we are operating on a only time charter basis, we receive charter hire in advance, which is advantageous from a working capital perspective. Scheduled loan installments were $20 million and in total $20.7 million, including this schedule reduction of the amortizing ranger RCF.

Net new billing CapEx was $11.9 million. And as mentioned previously, we increased the RCF under the original $100 million ranger facility with a $20 million non-amortizing traunch, adding additional liquidity and flexibility. In November, we announced a share by a buyback program of up to $4.1 million shares.

And during the first quarter, we purchased an additional 597,000 shares for $5.3 million or $8.87 per share on average. This together with the 37% per share dividend for the fourth quarter or $16.1 million was paid during the first quarter.

In conclusion, we had a positive net cash flow of $10 million, which leaves us with the robust total cash balance of $139 million at the end of the quarter. Turning to slide #11, this is a familiar slide to our frequent followers. We have over the last year secured a total of $1.7 billion of attractive financing for the fleet of 13 vessels.

At the same time, we have a diversified our funding base with the mix of bank financing, lease financing and ECA financing.

As communicated at the fourth quarter presentation, we had secured commitment for the $20 million increase under the $100 million ranger facility and the amendment was signed in March and then the amount thus fully available thereafter.

We have hatched the interest rate risk with interest rate swaps for a nominal amount of $674 million at quarter end. During the quarter we terminated two swaps and you used the positive value turn to enter a new swap at a lower fixed rate. The average fixed rate – fixed interest rates for swaps is a 1% -- 1.15%.

Together with the leases on fixed rates, we have a hedge of about 66%. All-in-all, we have a very comfortable depth maturity profile with the first maturity due in July, 2024. And this is provided by a pool of 15 different financial institutions. And over the years, we have demonstrated our ability to raise attractive funding.

Also during challenging times, both in the physical and the financial markets, as we have a very strong support from our wide banking group. And with that, I hand the call back to Øystein, who will give an update on the market..

Øystein Kalleklev:.

,

So slide #12. We topped of the market section with a snapshot of LNG exports and imports in the first quarter. And the first quarter of 2021 exports were close to £102 million, a £101 million pounds, according to Kepler data.

This was slightly as it was in-line with last year, despite the loss cargoes due to the big fleets in Texas, during February, as well as some other suppliers disruptions during the quarter, keep in mind volume got in first quarter of 2020 was very high as this was prior to the COVID-19 pandemic going viral on a global scale.

What is different from last year is that we saw considerably more fuel from Asia and particularly China as the winter weather in Asia at the start of the year was really cold with snow records in Japan and the coldest winter in Beijing since 1966.

So strong demand from Asia also resulted in increased sailing distances and this coupled with Panama congestion spot on unprecedented rally in both freight and product prices at the start of the year.

As we expand both in our [ph] QDC report in November and our Q4 report in February, we have been very bullish on volume growth in 2021 with estimated export growth of about 25 million tons in 2021 as product prices started to rally last autumn and this having all started to become the consensus view.

So as you can see from the graph to the right-hand side, we expect 7% to 8% export growth in 2021, which will be supportive of the freight market, which we will cover on the next two slides. So turning to slide #13, the spot market for freight.

As mentioned in highlights the boom at the end of 2020, continued into 2021 before softening by the middle of February when we were reporting our fourth quarter. However, the downturn was sure with the market bouncing back by end of April.

As usual we saw the first with the balance bonus conditions going from 200 basis in January to one way economics by end of February, before we started to see gain shoots in March with balance bonus conditions, turning back to the full long trip again by the middle of April and thus pushing up the time charter equivalent earnings in the spot market.

By end of April, going into May, the freight market was unseasonably strong with spot rates for modern tonnage approaching hundred thousand dollars per day in the Atlantic with somewhat lower rates in the Pacific as new building deliveries kept vessels availability higher than this basin.

As you can see from the graph on the right-hand side of the slide, availability of ships in Atlantic have been very low, except for during the big fleets in February in the U.S., when export of U.S. was for short periods propelled and more vessel became available in the Atlantic. The high freight rates, however, affects the relapse into the market.

And we have seen the market softening during the last two weeks due to slightly more vessel availability and rates for modern tarnish; turning into the $80,000 per day in both the Atlantic and Pacific basin.

But these are way solid numbers for me, as you can see on the graph to the left, however, the relapse in the market are typically only available for shorter durations as the traders and portfolio players typically want the ships back before winter season approaching.

And this is just not affecting the term market significantly as I really looked at on the next slide. So slide 14, let's have a look at the term market for freight.

In this comp, we showed term rates were one, three and five years over the last year, following the COVID-19 pandemic, as you can see the five-year TCE assessment flat-lined during most of the last year, as there was also limited interest for such [indiscernible] by charters, which could fix vessels cheap in the spot market or for shorter term business.

The one year, TCE last year were around 55 to 57,500 before, before turning sharply up from the beginning of April, in all holding close to $100,000 per day, the three year TCE rate, which is less liquid than the 12 month TCE, followed the trail months closed months.

TCE rates closely before also picking up from April now being at around $80,000 per day. So given the un-attractiveness of term business during the last approximately 12 months, until we started to see the gain shoots at the end of March, we elected to rather have the water playing the spot market.

At the start of the year, 8 of our 13 ships were either trading spot or on valuable hire contract. Plus we also had all lost new building open.

Despite pursuing this strategy, we managed to sail in $60,000 in time charter equivalent earnings for 2020, while keeping our options open, which was much more attractive than fixing ships on Covid for longer durations. Of course we are in the fortunate position that we had financed all ships in advance and that's with a big chunk of cash.

So we could afford to take the way it's for better times approach, which was not the case for all owners with termites picking up recently, we have utilized the momentum to fix a large part of our feet on term contract as much more attractive than what was achievable last year and the 2019 for that matter, so there is definitely something to patient being our virtue.

Our gas prices on slide 15, as previously highlighted gas prices started to recover over the summer last year, as we highlighted in our Q2 report last August, there was already at that time El Niño alert for the winter 2020, 2021, which normally means that winter weather will be cold and longer in the major gas importing nations.

We therefore elected to keep substantial spot exposure over this period and made healthy trading vessels for both Q4 and Q1 as recently explained. The winter came a bit late, but when it arrived, it was facing cold and it also lasted for a very long time, especially here in Europe.

Last autumn, we also experienced the most active hurricane season on the record than U.S., which caused supply disruption.

In the short term, this supply disruption had negative effect due to loss cargos, but the supply disruption also fuelled the product prices with Asian LNG benchmark JKM, going from a low of $1.80 during the early part of the summer last year to a high of $32.50 early 2021.

That was price of February, JKM compact was $18, 10 times the price during last summer, as you can see from the graph the big fees in the U S also led to a spike in the U S gas prices here represented by the [indiscernible]. Given the build one in oil prices, the U.S.

shell drilling have become increasingly profitable, so natural gas prices have returned to sub three dollars level with forward prices also in this level. JKM prices up to date close to $10 while European gas prices is slightly below $9.

Driven up by increased demand significantly higher, carbon prices increasing the switching band from coal to gas, as well as due to significant restocking demand due to very low gas inventories after this cold winter, which I will go through on to our next slide.

So last point to make is forward prices for gas, our attempt at highly different level this year than last year and this gives no incentive to cancel cargoes in U.S. or for that matter Egypt, which has become the new swing producer and that's why we are also confident on big volume increases this year.

So slide 16, Gas Inventories; gas inventories, as we start to dive into our December, 2020 presentation, the strong demand from Asia at the end of 2020 was pooling cargoes away from the Atlantic basin and away from European bias with rapid depletion of gas inventories in Europe as a consequence.

The Asian demand too continue into 2021 as I illustrated earlier, that surging in severe congestion in the Panama canal and booming faces at a softer player.

We therefore continued to highlight, in our January and February presentation that European buyers were being starved off from gas deliveries and therefore had to continue to run down the inventories quickly.

This was further aggregated by a cold and long winter in Europe with lack of snowfall in Madrid and the high carbon price in Europe with due to two prices hitting about EUR 50 which meant that gas becoming increasingly competitive towards coal, despite higher gas prices.

Hence we have been arguing for strong restocking in demand over the summer, minimizing the chance of a repeat of the summer cargo cancellations.

We are dust became increasingly comfortable with the market situation for 2021 and elected to keep a very high proportion of our fleet exposed to the spot market at the start of the year, as mentioned until we no acted on-term opportunities.

European inventories today stand at only 33.50%, which is less than half the levels last year, European inventories are about 60 to 70 million ton equivalent of LNG. So the shortfall in European inventories, are almost twice the volumes of U.S. cargo cancellation last year.

And it is almost unconceivable that European buyers will be able to fill up inventories ahead of next winter and this can spur gas prices and volatility particularly if economic recovery is firm and or if the winter is not even cold but just normal. So slide 17 that fleet composition.

Last quarter presentation, I had a regular old section about the new de-carbonization groups for all ships or EEXI, as it's called. We expect the new rules to be agreed by IMO in June. And these rules will play [ph]headEx for particularly for our owners of all those team [indiscernible], but opportunities, for our owners of state of our ships.

I'm not going to repeat the lecture from last presentation, but it's available on our webpage for those who missed it.

What I would like to point out is that the order book, which some analysts thought was two week this year to make for our conductive phase market if tailing off and a number of available and commercial vessels have come down a lot with the recent increase in term interest.

The mix of a few available MEGI equipped ships EEXI routes generally high on your billing prices. And the fact that the lot of older [indiscernible] is coming off long-term contract which result in more opportunities for us to fix ships on attractive term charters. We are now focusing on 2022 positions, given a high coverage for 2021.

And the reason for what fixed your flex Freedom at this point an opportunity. So that's my last slide before summarising, as I mentioned, revenues in line with guidance, we have substantial backlog for 2021, already book dividend.

We are increasing this now to $0.40 in addition to the buybacks; all ships will be on water by end of the month, as I've covered in gas sale we have a positive market outlook with some of these stocking. And we are in a very good financial position with all ships financed, balance sheet and lots of liquidity. So that's it for me.

I'm happy to take some questions if there are any.

Operator

[Operator Instructions] There are no questions at this time. [Operator Instructions]..

Unidentified Analyst:.

Unidentified Participant:.

Øystein Kalleklev

Yeah. Okay. Once again, everything is very clear. It seems like telephone is going out of Vogue. So maybe we should try to focus more on the chat function for questions next time. But until then I wish you a good weekend, a good spring. We will be back in August with the second quarter, the sales probably somewhere in the middle of August.

I think market will be very healthy at that time. Don't do loud facets going into six digits. By that time, we will probably see contango fracture developing in the gas prices because of a failure of Panama congestion. So, so I think, you know, and I'm really looking forward to the second quarter as well. So with that, I wish you a good day..

Operator

This concludes today's conference call is thank you for participating. You may now disconnect..

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