So before concluding, we will come with our annual ESG report later, probably around April. So we have an annual report with a lot of measures. But we have also been part of the PA Carbon Disclosure Project, where we are filing for a lot of data and getting our score. We got our 23 results yesterday, February 6 and we’ve been ticked up from B- to B. So I think that’s a pretty good result for us, given the lean organization we have in terms of reporting on all these measures. So before we head for the Q&A session, I’m just going to repeat the main highlights. Revenues,$97.2 million, in line with guidance. We are delivering $37.8 million adjusted net income which is the most applicable number which gives our earnings per share adjusted of $0.70.
We are a bit in the softer market now which is no surprise. We will be ready for the spot market with Flex Constellation in the second quarter after we have been carried out the drydocking offer. We’re happy to have a 2-year extension of Resolute to ’27, adding further backlog to our fleet. And then we are guiding similar numbers for Q1 this year as last year, a bit softer because of the spot market affecting the variable higher time charter and then we might do some docking in Q1 or most of it, we do expect to take place in Q2. So with good numbers, healthy financial position, we are declaring a quarterly dividend, $0.75, bringing it up to $3.125 [ph] for the year and that should give a yield of, yes, it’s probably 12%, now. Okay. So Knut.
Let’s see if we have some questions.
A – Knut Traaholt: Yes. Thank you for the questions that you have sent in. And I think we start off again with Omar Nokta. And there’s a number of questions regarding the Red Sea and also Panama Canal. So from Omar, these restrictions, are they enough to offset the new building deliveries and lead to a tighter market?
Øystein Kalleklev: I think for the Red Sea, it’s mostly affect Qatar. Qatar they might get a bit short on shipping and need to relet in some ships in order to have sufficient capacity to move the Qatar volumes to Europe. So I think it depends a bit more on the trading pattern, who is going to be the major pool of cargoes this year. Is Europe going to be desperate to be the buyer of first and last sort or Europe going to stay a bit more back now and leave some more room for the Asian countries that will affect the market more. Panama. It’s never been that important for LNG. A lot of the LNG ships, the route we are — Cape of Good Hope anyway. So we’ve been frank about the fact that this year, we see a bit more ships than molecules.
But on the other hand, we also do expect that finally, we will have scrapping. Usually, people don’t scrap their ships in a good market. We have had very good markets, ’21, ’22, ’23. It doesn’t give a lot of incentives to scrap our ship but Keep in mind, when these ships are getting older and they’re already a bit outdated on the technology. Are you then willing to commit a lot of money to drydock those ships? And typically, you have to replace a lot of these older systems. So I think that will be a bit more important. I think also the price curve of gas will be important because if you have a contango structure in the price curve of gas or LNG, you will have floating storage which typically any year can take out 40, 50 ships of the fleet in kind of this contango trades.
So that I think is probably a more important driver.
Knut Traaholt: And following up on the Red Sea, the insurance rates have increased if you’re trading in that area. And also there may be other costs associated with being there. How is that affecting Flex?
Øystein Kalleklev: Yes. Right now, it’s not a single LNG ship in the Red Sea. But before everything blew up. We also had ships going through that area as the situation at that time was considered to be moderate risk for ships without a link to Israel. So — but that drove up the price of the insurance. So typically, you need a war risk insurance in order to go through that area the biggest provider of war risk is the Norwegian war risk fund. And the price we saw on the pricing of getting insurance to go through that area went up 10 times today, it’s probably a lot more but we haven’t asked for a quote because we haven’t had any instruction to go to that area. However, in our time charter, it’s basically — we are a private driver.
So we show up with our ship and crew and under the time charter, it’s the charter who is responsible for the routing and the instruction to the ships, where to trade. That also means that a charter is responsible for taking the cost associated with that trade. So if the charter elect to go to Suez, there will be a Suez tariff to pay which they will have to pocket and they will also have to cover the war risk associated with that. So that is something they will put into account when instructing the ship. The same goes with Panama if they go to Panama and they pay $3 million in order to skip the queue, we are not paying that. It’s their instruction how to trade a ship. They have to carry all the costs associated with that. And from this year, this also includes the EU ETS.
So it’s the emission trading system of European Union started to be implemented for the maritime sector this year which means that if we take a ship into Europe, we will need to buy carbon quotas for the emission associated with that trade. So typically, if you take a U.S. cargo to Europe, you will pay a carbon emission for 50% of the route because it’s one ballast leg and one laden leg. But again, this is a cost of the trade. We pass this cost to our charters as they are the one deciding where the ship goes. And of course, this has created us some issues in relation to the Red Sea because journalists, they typically ask you, how are you sending a ship to the Red Sea. But under a time charter and every single voyage in LNG shipping is a time charter.
Regardless if that’s a spot voyage or short voyage, a term charter, it’s a time charter. And under a time charter, charter is one instructing the ship. We will have to follow then those instructions. We have a contractual obligation to do so. However, in our standard time charter there is certain provision in relation to safety. So the master has to assess the situation together with us, whether it’s safe to comply with those instructions. If it’s not then, of course, we can reject. But that also opens you up to litigation. What is safe and what is not safe, it’s a bit of ambiguity and we rely on advice from outside advisers as well as the people writing the war risk insurance in order to make that assessment.
Knut Traaholt: And while we are at cost, there’s a question here on demand for crew with the big new order book and deliveries of new building in the coming years? How do you see demand for crew and the situation for Flex?
Øystein Kalleklev: It’s a very relevant question because top of my head, that was about 1.6 million seafarers in the world. A lot of this used to be Russian crew which these days, there are certain restrictions on those and a lot of that crew base where LNG offices so that means it’s — you need to replace, in some instances, that crew because you might not be able to pay them. So that has also created some issues. We have Ukrainians which is also a maritime nation, where a lot of Ukrainians have elected to rather stay at home and fight the war rather than being at sea. So yes, it’s not that easy. However, LNG business is maybe the most technical, sophisticated part of the shipping industry, maybe together with container ships.
So that means you will typically always be able to attract talent for this business which means basically, we need to poach people, the best people from the tanker space or the LPG space. So basically, you’re passing on the problems. And at the bottom of the sector, you typically have small by bulk. So the — you’re cascading the problem down and yes, it’s getting harder to get people. LNG will always be able to find people but these are sophisticated ships. You cannot let everybody just run these ships because there’s a lot of technology in these ships. So it’s getting harder. We are able to do it. We try to retain our crew. We try to be a good employer so that people want to sail with Flex LNG.
Knut Traaholt: And we have questions from BTIG and it’s related to Flex Constellation and the rechartering options and alternatives and what your preference?
Øystein Kalleklev: This is Greg?
Knut Traaholt: It’s Greg.
Øystein Kalleklev: Good to see you, Greg. Regarding chartering opportunities, let’s see. We need to get a kind of firm redelivery date and — but our plan is to — once we get that back to Docker and marketer, we already been around talking to people. We — if we have a contract, we would, of course, announce that. So given the nature of this business and the name of the company, we are flexible, we are open to do shorter, longer, medium term. We really need to see what is the economics? And then if it makes sense, we are open to fixed loan. But if we don’t get the numbers we want, we are happy to trade the ship back again in the spot market. We’ve been out of it for some time now. And we — I have to say, we missed action. But that we are super comfortable with that. We’re 94% coverage for this year. So we can afford to have our ship in the spot market. If we deem that to be more attractive than finding a term deal.
Knut Traaholt: Then there’s a number of questions on EU ETS [ph]. How are we prepared? How is that — is there any cost for us?
Øystein Kalleklev: Yes. I think I’ve already covered it, it’s part of the time charter logic. So the charter in structuring the — if they’re instructing the ship to go into EU, that is associated with cost of trade which is the EU ETS. So we have amended time charter to where kind of we will typically — either they will buy the carbon quota and surrender them to us and we will surrender them to hear or we buy them for the charter and send them a bill for those carbon emissions and then surrender to EU. For us, it’s not a cost, it’s a pass on to the charters. And of course, in the end, they need to pass that cost to somebody and that is miss of [ph] Consumer. So there’s no tax without any cost. So in the end of the day, it’s the consumer paying this tax, not us.
