Consolidated and Company Annual Report and Financial Statement 2009
Contents
Chairman’s Statement
Board of Director’s Report
Responsibility Statement
Corporate Governance Report
Income Statement and Statement of Comprehnsive Income
Statement and Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
Pages
04
06
10
11
18
19
20
22
24
Consolidated and Company Annual Report and Financial Statement 2009 02
General Information,
FLEX LNG Ltd
Directors
Auditors
James A. MacHardy (Interim Chairman)
Philip E. Fjeld
Scott Pearl
James D.A. van Hoften
Ian Beveridge
Anders Westin
Aoki Hiromichi
Ernst & Young AS
Thormøhlens gate 53 D, NO-5008
Bergen
P.O. Box 6163 Postterminalen
NO-5892 Bergen, Norway
Bankers
Bank of Ireland (Isle of Man) Limited
PO Box 246, Christian Road
Douglas, IM99 1XF
Isle of Man
HSBC
165 Fleet Street,
London, EC4A 2DY
United Kingdom
Company Secretary
West Corporation Limited
Analyst House
20-26 Peel Road
Douglas, IM99 1AP
Isle of Man
Registered Office
Craigmuir Chambers
P.O. Box 71
Road Town
Tortola
British Virgin Island
Consolidated and Company Annual Report and Financial Statement 2009 03
James A. MacHardy
Chairman
FLEX LNG
CHAIRMAN’S
STATEMENT
History and Development
FLEX LNG Value Proposal
FLEX LNG Ltd (“FLEX LNG” or the
“Company”) and FLEX LNG Group
(“Group”) were
the
purpose of producing liquefied natural
gas (“LNG”) offshore by commercialising
floating LNG production units.
founded with
Today natural gas is primarily transported
to end markets by natural gas pipelines
or through transportation of LNG that is
being regasified and piped to end users.
Historically LNG plants have often been
large, onshore projects dedicated to large
(>10TCF) on - or offshore natural gas
fields. In recent years the LNG industry
has experienced delays in production
capacity from escalating engineering,
procurement and construction (“EPC”)
costs as well as political uncertainty in
certain gas producing regions.
FLEX LNG was established with the
purpose of attempting to address this
shortage
through constructing LNG
Producers which could increase industry
LNG supply by targeting fields at cost
competitive with current facilities.
FLEX LNG aims to do this through the
combination of its vessel design (using
sloshing resistant SPB containment system)
and application of existing liquefaction
technology.
The Group has placed orders for four
LNGP vessels (“FLEX LNG Producers”) that
intend to utilise the SPB LNG containment
system from Samsung Heavy Industries
Co., Ltd (“Samsung”). The Group has
also entered into an EPCIC contract with
Samsung for the topside liquefaction
facility for the FLEX LNG Producer no. 1
with an option to enter into similar EPCIC
contracts for topside liquefaction facilities
for the FLEX LNG Producers 2-4.
The vision of FLEX LNG is to become an
early mover in owning and operating
floating LNG production units. This is
intended to be achieved through utilising
what the Company believes to be a
unique yard relationship developed with
Samsung and through its commercial
approach. FLEX LNG is also potentially
seeking exposure across the LNG value
chain in order to optimise the value
created by its FLEX LNG Producers.
The FLEX LNG Producer is intended to be
a self-propelled offshore LNG production
vessel. It is intended to be able to pre-
treat, liquefy, store and offload LNG. The
feed gas may be supplied either directly
from a natural gas field, from a wellhead
platform, as associated gas from a nearby
oil FPSO, or from an onshore natural gas
source or pipeline.
The overall design principle for the FLEX
LNG Producer is intended to maximise
the use of proven and robust technologies
to achieve a safe and reliable concept.
Focus has been on simplifying the design
and removing unnecessary complexity for
successful implementation of onshore
technology in a marine environment.
By developing what the Company expects
could be one of the world’s first FLNG
production unit, FLEX LNG is aiming to
be an early mover in providing floating
liquefaction capacity to the world market.
Market Update
According to the IEA, the world demand
for natural gas will grow significantly over
the next 20 years, with IEA projecting an
expected growth of 41% in the period
2008 to 2030. The depletion of existing
reserves could lead to increased regional
Consolidated and Company Annual Report and Financial Statement 2009 04
CHAIRMAN’S STATEMENT
(continued)
intending
from companies
to
provide floating LNG production
concepts. These companies are
primarily established FPSO players
and players from other parts of
the LNG value chain, but also the
large international oil companies
(IOC`s) have developed their own
concepts. While service providers
seem to be aiming at smaller scale
liquefaction capacities the IOC have
based their concepts on large scale
liquefaction capacities.
FLEX LNG believes it has one of
the industry’s more advanced FLNG
concepts as approximately 300,000
man hours has been
invested
in the development of the LNG
Producer through all phases. FEED
for the generic LNGP concept was
concluded in 2009. Long lead items
for the topside, for vessel #1, and
the majority of the hull equipment,
for vessels #1-4, have been procured
by Samsung and subcontractors.
Additionally extensive work has
also been conducted for field
specific adaptations of generic
design. Feasibility studies have been
performed for different projects
ranging from rich gases with high
CGR to lean gases with long tail of
heavy hydrocarbons, high nitrogen
content, CO2 rich gases and harsh
environmental
The
studies have indicated that the
generic design has field specific
adaptation flexibility.
conditions.
I believe that FLEX LNG is well
placed to benefit as the market
matures and as we strive to move
into the commercial phase of our
development.
James MacHardy
Interim Chairman
Market Update
(continued)
imbalances and consequently the
gas may have to transported to the
markets across regions utilising LNG
transportation. Cambridge Energy
Research Associates predicted that
the global LNG market will triple in
size and play a more important role
in world energy supplies over the
next 20 years.
According to Wood Mackenzie,
Asian markets have emerged as
the key growth driver in the LNG
industry with Japan and South
Korea being the world’s largest
importers of LNG, and China and
India growing rapidly on the back
of expanded regas capacity. The
European buyers should target
LNG for diversity of supply (keen
to reduce its dependence upon
Russia) and with potential upside
from new importers, the European
market outlook remains healthy.
The Company is cognizant of and
monitors the ongoing trends within
the LNG market, including the
growth of gas supplies from non-
conventional sources, and remains
positive as to FLEX LNG’s ability to
continue its development.
Through utilising the FLEX LNG
Producers, FLEX LNG aims
to
increase industry LNG supply by
commercialising gas fields or even
offer development solutions for early
production and staged development
of larger gas reserves.
However,
Floating LNG production has been
a segment which has been much
discussed within the industry but
no actual units have yet been
constructed.
with
increasing energy prices to make
offshore liquefaction feasible the
industry appears to be experiencing
a rapid development over the past
2 years. While FLEX LNG intends to
be an early mover there has been
a steady flow of announcements
Consolidated and Company Annual Report and Financial Statement 2009 05
BOARD OF DIRECTOR’S
REPORT 2009
Business Update
FLEX LNG is an innovative company
founded with the purpose of producing
LNG offshore by commercialising what
it expects could be amongst the world’s
first LNG Producers. The Company, via
its subsidiaries, has four units on order
from Samsung Heavy Industries in Korea;
the first unit is currently expected to be
ready for delivery in 2013. The major
activities in 2009 were related to further
technical development of the floating
LNG production concept, raising capital as
part of an IPO on Oslo Axess and working
towards commercial arrangements for
the LNG Producers.
FLEX LNG believes it has one of the
industry’s more advanced FLNG concepts,
as approximately 300,000 man hours
have been invested in the development of
the LNG Producer through all phases. In
March 2009 the Company completed the
FEED engineering for a Generic FLEX LNG
Producer vessel. Long lead items for the
Topside, for vessel #1, and the majority
of the hull equipment, for vessels #1-4,
have been procured by Samsung and its
subcontractors. Extensive work has been
conducted for field specific adaptations
of the generic design. Feasibility studies
have been preformed
for different
projects ranging from rich gas with high
CGR to lean gases with long tail of heavy
hydrocarbons, high nitrogen content,
CO2 rich gases and harsh environment
conditions. The studies have indicated
that the generic design has field specific
adaptation flexibility.
The global energy industry’s interest in
floating liquefaction solutions continued
to grow through 2009 despite the global
economic downturn. A number of FLNG
projects have moved into pre-FEED and
FEED with communicated targets to
reach final investment decisions within
the coming years.
for
The Group continues to focus on securing
employment for the LNG Producers,
and is discussing alternative commercial
arrangements
the employment,
such as integrated projects consisting
of gas supply contracts with oil and gas
companies, product handling agreements
for the services of the LNG Producers,
and LNG sales and purchase contracts
with LNG off-takers as well as more
Consolidated and Company Annual Report and Financial Statement 2009 06
BOARD OF DIRECTOR’S
REPORT 2009 (continued)
Business Update
(continued)
traditional charter arrangements.
The Group is currently pursuing a
number of opportunities. In 2010
the Group has announced that it
is in advanced talks with an Asian
National Oil Company (NOC) to
join a floating liquefaction project
that would monetise gas resources
controlled by the NOC in Australia.
The proposed project would be
developed by a JV where FLEX
LNG would join the FLNG project
together with one or more technical
and commercial partners.
into
in order
discussions.
On 11 June 2009 the Company
an
entered
agreement
with Samsung
(the “Principle
Agreement”) to provide increased
to provide
flexibility
more time to mature ongoing
commercial
The
Principle Agreement provides a
period of reduced activity (where
only certain critical engineering
work will be performed) based on a
delay of agreed delivery dates and a
corresponding delay in the payment
schedule. In addition a proportion
of
installments
made on FLEX LNG Producer no.
4 have been transferred to FLEX
LNG Producer no. 1 to support its
development. The Company may,
at any time prior to 31 May 2010,
serve Samsung with a resumption
notice requiring Samsung to resume
the work under the EPCIC contract
and the shipbuilding contracts. The
resumption shall then commence
within one month from the notice.
the payment
On 22 June 2009 FLEX Petroleum
Limited, a wholly owned subsidiary
of FLEX LNG, announced that
it had entered into an option
agreement setting out the terms
to acquire control of Jersey-based
Minza Oil & Gas Ltd (“Minza”) ,
additional details in note 2 and
16. This company holds 100% of
the production sharing contract
for JPDA 06-101(A). JPDA 06-
101(A) is in the Joint Petroleum
Development Area between Timor-
Leste and Australia located in the
Timor Sea. In 1998 the Chuditch-1
well was drilled on the acreage and
resulted in a potentially sizeable
gas discovery. Based on evaluations
carried out by third parties FLEX
LNG believes the acreage could hold
sufficient gas to support a floating
LNG project. In late August 2009
Minza commenced the “Anita”
and “Wombat” 2-D
seismic
surveys offshore Timor-Leste. The
survey involved the acquisition of
approximately 940 km of full fold
seismic in JPDA 06-101(A). The
seismic data has been processed
and interpreted in early 2010,
and has provided greater clarity
to the gas initially in place (GIIP)
estimates. The Company continues
negotiations with potential partners
and financing sources to fund and
to allow the Minza option to be
exercised.
to
and
FLEX LNG successfully completed
its Initial Public Offering in October
2009. On 28 October the Board
issue 10,381,819
resolved
new shares at a price of NOK
5.50 per share. The Offering
was oversubscribed
the
gross proceeds from the offering
amounted to $10m. Oslo Børs
resolved to admit shares in FLEX
LNG to listing on Oslo Axess and
the first day of listing on Oslo
Axess was 30 October 2009. After
the issue FLEX LNG had a total of
112,746,190 shares outstanding.
The
Initial Public Offering was
subscribed for by a wide range
of international and Norwegian
investors and FLEX LNG has more
than 250 shareholders after the
completion of the offering.
factor
important
to
success
the
An
Company’s
is
future
its ability to attract and retain
excellent employees. The Company
continues to recruit outstanding
and talented technical, commercial
and professional staff members,
which have been added to the
management company contracted
to perform day-to-day management
for the Company. At the end
of 2009 the two management
companies employed 41 skilled or
experienced full time employees/
contractors, based in the UK and
Norway, and the Company will
look to retain current staff and
attract additional employees to
successfully execute on the Group’s
business plan.
Funding and Going
Concern
it
statements
faces and
acknowledges
for
The financial
2009 have been prepared on
concern basis. The
a going
Company
the
current challenging fund raising
environment
the
impact that this has on the ability
of the Group to finance its funding
requirement. Following the raising
of $10m of additional capital as
part of the listing on Oslo Axess on
30 October 2009, the Company
expects to have sufficient financial
resources to enable it to continue
trading and to meet its payment
obligations until the next hull
payments are due to be made
to Samsung in November 2010.
Under the Principle Agreement
with Samsung
resumption
notice needs to be given by 31
May 2010. Should the notice not
be issued by this date Samsung
has a contractual right to cancel
all the four shipbuilding contracts
as well as the EPCIC contract for
M-FLEX 1. Samsung has informed
FLEX LNG in writing that they will
work with the Group with the
aim of amending the Principle
Agreement. In addition they have
informed FLEX LNG that presently
and dependent on commercial
progress and cost impact they
have no intention of exercising
their right of termination stipulated
under the Principle Agreement and
acknowledge the need to defer
the
Consolidated and Company Annual Report and Financial Statement 2009 07
BOARD OF DIRECTOR’S
REPORT 2009 (continued)
Funding and Going
Concern (continued)
the resumption date. The Group
aims in 2010 to (a) conclude a
final investment decision (FID) for
at least one of the LNG Producers
(which
the Company believes
should enable it to raise additional
finance), or (b) raise additional
working capital and rearrange its
obligations to allow the Company
more time to achieve (a). These
steps would allow the Group to
finance its operations over the
year. Additional
is
included in notes 18 and 19. The
future
Company believes
linked to
financing would be
achieving project FID.
information
that
Risk
The Company was founded in
2006 and has since its inception
focused on the engineering and
construction of the LNG Producer
units. The Group’s activities expose
it to a variety of financial risks,
including market risks, credit risks
and liquidity risks.
The Company has historically
funded its operation from equity.
Obtaining such financing may
be subject to market risks and
other risks that may influence the
availability, structure and terms of
such financing. When the financial
markets do not function properly,
this
risk becomes particularly
relevant for a capital intensive
company like FLEX LNG, which is
not in a position to support its new
building program with cash flow
from operations. The Company
has sought advice and believes
that additional project loan finance
would be available
if suitably
structured commercial contracts
are obtained. At present there
are commitments of $2,503m to
Samsung. In connection with the
construction of the LNG Producers,
the Company has endeavored
to prepare proper specifications,
including as to the supply and
installation of equipment. Despite
these efforts, there can be no
assurances that delays and cost
overruns will not occur and such
events, if occurring, could have an
adverse impact on the Company’s
financial position. Where possible
the Company has sought fixed
price
lump sum contracts for
the construction work in USD.
Currently the commitments for
the Hulls have been fixed in USD
($1,776m), while the Topside has
not yet been fixed. Additional
detail and risk analysis is provided
in accounts notes 1.4, 8, 16,
18, 19, and 20 and Corporate
Governance section 10.
Income Statement and
Balance Sheet
During the year the FLEX LNG
Group of companies (the “Group”)
has continued to develop what
it believes could be amongst the
world’s first LNG Producers. The
costs capitalised in the year on the
four units were $22.4m (2008:
$300.6m). The cash balances at
31 December were $25.7m (2008:
$49.5m). In the twelve months
in 2009 the operating cash flow
was $(14.8)m
the
operating loss and working capital
movements);
investing activities
$(23.9)m (mainly capitalised asset
costs and business acquisitions);
and financing activities $15.2m
(proceeds from deferred payments
to Samsung and the IPO share
proceeds). The retained loss for the
year was $10.5m (2008: $12.0m),
which has been transferred to
reserves.
(principally
During the year the FLEX LNG Ltd
(the “Company”) has continued
to hold the investments in its
subsidiaries, raised working capital
and managed the strategic direction
of the Group. The investments and
loans to subsidiaries in the year
the operating
were $28.0m (2008: $311.3m).
The cash balances at 31 December
were $24.6m (2008: $49.5m). In
the twelve months in 2009 the
operating cash flow was $(5.8)m
loss
(principally
and working capital movements);
investing
$(28.0)m
activities
(additional loans and acquisitions);
and financing activities $8.9m
(proceeds from the IPO share issue).
The retained loss for the year was
$1.5m (2008: $1.4m), which has
been transferred to reserves. The
Directors do not recommend the
payment of a dividend.
On 1 January 2009 FLEX LNG
Ltd completed the acquisition of
FLEX LNG Management Limited.
No goodwill has arisen on this
transaction. The Minza purchase,
in June 2009, has been accounted
for as a purchase of an asset.
The Board
There has been no change in the
composition of the Board during
the financial year.
Environmental
Reporting
the
little
currently
The company has an objective
that all activities
that are
performed are to be carried
out while minimising damage
surroundings.
to people or
Given
pre-commercial
nature of the operations there
corporate
is
impact on the environment. In
2010 the Group has committed
requirements
follow
to
the
ISO
ISO 9001:2008 and
of
14001:2004, the objectives of
which are client satisfaction,
reduced environmental
impact
and
realisation of company
objectives.
Consolidated and Company Annual Report and Financial Statement 2009 08
BOARD OF DIRECTOR’S
REPORT 2009 (continued)
Working Environment
and Personnel
At the end of 2009, FLEX LNG
and its subsidiaries had in total 41
employees, 33 men and 8 women.
All personnel are employed by FLEX
LNG Management Limited and
FLEX LNG Management (Norway)
AS. As far as the Board of Directors
are aware, there have not been
any serious damages or accidents
in 2009. Total absence due to
sickness has been 0.5% during the
accounting year. FLEX LNG’s Board
of Directors consists of 7 men and
0 women. The Company’s policy
prohibits unlawful discrimination
against employees, on account
of ethnic or national origin, age,
sex or religion. Respect for the
individual is the cornerstone of this
policy and the Group also aims to
treat its employees with dignity and
respect.
Post Balance Sheet
Events
There have been no significant post
balance sheet events, other than
those listed in note 17.
Board of Directors of
FLEX LNG Ltd - 27
April 2010
James MacHardy
Interim Chairman
Aoki Hiromichi
Scott Pearl
Ian Beveridge
Philip Fjeld
Anders Westin
James van Hoften
Consolidated and Company Annual Report and Financial Statement 2009 09
Responsibility
Responsibility
statement
statement
We confirm, to the best of our knowledge
that the financial statements for the
period 1 January to 31 December 2009
have been prepared in accordance with
current applicable accounting standards,
and give a true and fair view of the assets,
liabilities, financial position and profit or
loss of the entity and the group taken as
a whole.
We also confirm that the Board of Directors’
Report includes a true and fair review of
the development and performance of the
business and the position of the entity and
the group, together with a description of
the principal risks and uncertainties facing
the entity and the group.
Board of Directors of FLEX LNG Ltd - 27 April 2010
James MacHardy
Interim Chairman
Aoki Hiromichi
Director
Philip Fjeld
Director
Anders Westin
Director
Scott Pearl
Director
Ian Beveridge
Director
James van Hoften
Director
Consolidated and Company Annual Report and Financial Statement 2009 10
Corporate
Governance Report
1) Implementation and reporting
on corporate governance
As a company incorporated in the British
Virgin Island (“BVI”), the Company is
subject to BVI laws and regulations.
Additionally, as a consequence of being
listed on Oslo Axess, the Company must
comply with certain aspects of Norwegian
securities
is also obligated
to adhere to the Norwegian Code of
Practice for Corporate Governance (the
“Code of Practice”) on a “comply or
explain” basis. Further, the Company
has in place a Memorandum and Articles
of Association, which set forth certain
governance provisions.
law and
customers,
The Group is committed to ensuring that
high standards of corporate governance
are maintained and is committed to
high ethical standards in dealings with
all stakeholders, including shareholders,
debtors,
and
employees. Strong corporate governance
principles help to ensure that the Groups’
standards are applied to all its operations,
and
furthermore
implemented a Code of Business Conduct
and Ethics. Further information in this
respect is available on www.flexlng.com.
the Board has
vendors
The Board of Directors has based its
corporate governance practices on
the principles set out in the Code of
Practice. However, since the Company
is governed by BVI laws and regulations,
and given the pre commercial nature of
the Group’s activities, certain practices
are applied which deviate from some of
the recommendations of the Code of
Practice.
In the following, the Company’s corporate
governance policies and procedures will be
explained, with reference to the principles
of corporate governance as set out in the
sections identified in the Code of Practice.
This summary does not purport to be
complete and is qualified in its entirety by
the Company’s Memorandum and Articles
of Association, BVI and Norwegian law.
2) Business
The objective of FLEX LNG is to establish
itself as a leading owner and operator
of Floating LNG production units. The
objectives are within the framework
of its Memorandum and Articles of
Associations, which may be reviewed at
www.flexlng.com.
Consolidated and Company Annual Report and Financial Statement 2009 11
Corporate Governance Report
(continued)
2) Business (continued)
The Group operates principally
through its subsidiaries. The vision of
FLEX LNG is to become an early mover
in owning and operating floating
LNG production units. This is intended
to be achieved through utilising
what the Company believes to be a
unique yard relationship developed
its
with Samsung and
commercial approach. The Company
is also potentially seeking exposure
across the LNG value chain in order
to optimise the value created by its
FLEX LNG Producers. The business
principles are as follows;
through
• The customers are a top
priority. By working with
clients to jointly explore
business opportunities FLEX
LNG intends to develop long
lasting relationships based
on trust and a goal of creating
economic value
• FLEX LNG will strive to provide
superior shareholder returns
• FLEX LNG will aim to attract
and retain highly qualified
individuals through
compensation packages that
align employees and
shareholders’ interest
• Creativity and innovation
spearheads the commercial
and technical work conducted
by FLEX LNG. In an effort to
stay ahead of competition
FLEX LNG will relentlessly drive
for continuous improvements
that permeate the FLEX LNG
culture
• FLEX LNG emphasises integrity
and honesty in the way it does
business
3) Equity and dividends
Equity
The appropriate level of equity for
the Group is evaluated by the Board
on an ongoing basis, via reviews at
the Board meetings. Total share
capital at 31 December 2009 was
USD 1,127,461.90, divided into
112,746,190 shares of USD 0.01
each. The directors believe this
is currently satisfactory given the
Group’s business and objectives.
Dividend policy
As the Group has yet to produce
stable cash flow, or to secure a
commercial contract, dividends will
not be considered in the near term.
Equity mandates
As a BVI company it has 200m
maximum of authorised number
of shares per its Memorandum and
Articles of Association. To issue new
shares or increase the authorised
number of shares requires an
ordinary shareholder
resolution.
The authorised and issued share
capital for the Group is detailed in
the annual and quarterly reports
which may be reviewed at www.
flexlng.com.
connection with
In
issuance
of shares in the Company, the
shareholders have (except to the
extent they are waived) pre-emptive
rights to the new share on a pro-
rata basis. Currently, the Board has
not resolved and does not intend
to acquire its own shares.
4) Equal treatment of
shareholders and transactions
with close associates
The Company has only one share
class, with identical voting rights.
All shareholders are treated equally
and the Articles of Association do
not contain any restrictions on
voting rights.
All transactions between the Group
and its close associates as defined
by the Group’s Code of Conduct,
will be at arm’s length and market
prices. Where appropriate the Group
ensures third party independent
evaluation, where defined by the
Code of Conduct. Any transactions
between the Group and close
associates will be detailed as related
party transactions in note 15 to the
financial statements.
5) Freely negotiable shares
With limited exception, all shares in
the Company are freely negotiable,
and the Articles of Association
contain no form of restriction on
the negotiability of the shares.
in
from adverse
However, as a BVI company, and
to protect existing Norwegian
tax
shareholders
consequences
Norwegian
Controlled Foreign Corporations
Regulations, the Group may, in
accordance with the Articles of
Association, deny
transfer
of shares which would lead to
Norwegian
being
deemed a Controlled Foreign
Company. This type of restriction is
normal for British Virgin Island and
other low-tax jurisdiction companies
listed on the Oslo Axess.
ownership
the
interest
The founders of FLEX LNG have
personally and through their wholly
owned company Hansa LNG Ltd.
entered into a lock-up agreement
with the Company in respect of
shares in the Company or financial
interest therein, and have agreed
not to directly or indirectly pledge,
sell, or otherwise dispose of shares
(or financial
therein)
held directly or indirectly by the
founders personally or through
Hansa LNG Ltd. until the later of
(i) the delivery of the second vessel
under the shipbuilding contracts
with Samsung and (ii) 30 June 2011
(the “Lock-up Period”). The Shares
held by the founders personally
or through Hansa LNG Ltd. or
financial interest therein cannot
be pledged, sold or otherwise
disposed of during the Lock-up
Period without the written consent
of the shareholders representing
two-thirds of the total number of
issued shares of FLEX LNG.
Furthermore, the shareholders of
the Company have on the Annual
General Meeting
in 2008 and
2009 resolved that half of the
remuneration for the directors for
the two years shall be paid by the
Consolidated and Company Annual Report and Financial Statement 2009 12
Corporate Governance Report
(continued)
5) Freely negotiable shares
(continued)
issue of new shares in the Company,
that are to be subject to a lock-up.
The shares issued as remuneration
for the first half year of 2008
and 2009 year, respectively, shall
become unlocked or have become
unlocked on the first anniversary
after its grant, and the remaining
shares issued (for the second half
of 2009) shall be unlocked one
year thereafter.
to make arrangements for an
independent Chairman for each
General Meeting, for instance by
arranging for the person who opens
the General Meeting to put forward
a specific proposal for a Chairman.
The notice of the General Meeting
as well as supporting documents
will be made available at the website
www.flexlng.com as well as www.
newsweb.no where minutes from
the general meetings will also be
made available.
include
shareholders
6) General meetings
The Annual General Meeting
(“AGM”) is the forum for the
Company’s
to
participate in major decisions, and
is held each year. The Company’s
Articles of Associations require 14
days notice for both Annual and
Special General Meetings. The notice
for Annual and Special General
Meetings shall
relevant
material to enable the shareholders
to make an informed decision.
All shareholders are entitled to
speak and vote at the General
Meetings. The Board of Directors
shall take steps to ensure that as
many shareholders as possible can
exercise their rights by participating
in General Meetings, for instance by
setting deadlines for shareholders
to give notice of their intention to
attend the meeting (if any) close to
the date of the meeting as possible
and by giving shareholders who are
not able to attend the option to vote
by proxy. The Board of Company
for
shall make arrangements
shareholders voting by proxy to give
voting instructions on each matter
to be considered at the meeting.
The AGM shall be organised in
such a way as to facilitate dialogue
between shareholders and
the
officers of the Company. Thus, the
Board of Directors will ensure that
a member of the Board is present
and the auditor will be available
to answer questions. Also, the
Board of Directors will endeavour
FLEX LNG strives to maintain an open
and fair dialogue with its shareholders
through publishing of information,
presentations and responding to
questions from shareholders. The
Company has not, however, taken
specific measures for obtaining
shareholders’ proposals for matters
to be proposed to the shareholders’
meeting. In the view of the Company,
the current shareholder structure,
the
representation,
and the policy to communicate
with
sufficient
to ensure that shareholders may
communicate their points of view
to the executive management and
the Board. In addition, given the
Company’s current development, it
does not believe that it is necessary
for all Directors to be present at the
General Meetings.
shareholders
shareholder
is
Company
7) Nomination Committee
a
operates
The
Nominating Committee, which
is responsible for identifying and
recommending board candidates
to the AGM. The Committee’s
responsibilities
obligations and
are established in the Company’s
Articles of Association. Currently
George Linardakis, Rolf Emblem
and Jennifer Pomerantz comprise
the members of the Nomination
Committee, and all members are
independent of the Board and
the executive management. All
members are elected for a period
until the 2010 AGM.
8) Corporate assembly and
Board of Directors: composition
and independence
As a BVI
registered company
with currently 41 employees and
contractors, the Company does not
have a corporate assembly.
of
is fully
companies
The Company’s Board of Directors
currently comprises seven directors,
six are considered
of whom
independent
executive
management. Mr P. Fjeld, the CEO
of FLEX LNG Management Limited,
is also serving as a director of the
Company. Mr P. Fjeld’s position
on the Board is considered to be
important for ensuring that the
Board
informed about
the commercial activities of the
management
and
also to cover an area of expertise,
being knowledge of the new and
developing LNG production market.
To ensure that Mr P. Fjeld’s position
on the Board does not cause any
conflicts of interest, the Board has
established
in
which Mr P. Fjeld is not a member. Of
the seven members, three directors
also represent shareholders with
holdings exceeding 10%; Mr A.
Hiromichi, Mr S. Pearl and Mr A.
Westin. The composition of the
Board of Directors, including the
controls to avoid conflicts of interest,
is in accordance with BVI company
law, the Memorandum and Articles
of Association and good corporate
governance practice.
sub-committees,
The Company endeavours to ensure
that it is constituted by directors
with a varied background and
the necessary expertise, diversity
and capacity to ensure that it can
function effectively. The directors
are elected by the General Meeting,
for service periods of two years or
such shorter period as stated in
the relevant resolution. Directors
may be re-elected and there is no
limit on the number of terms that
any one director may serve. Re-
election of the current directors
Consolidated and Company Annual Report and Financial Statement 2009 13
Corporate Governance Report
(continued)
8) Corporate assembly
and Board of Directors:
composition and
independence (continued)
is due at the AGM in 2010. They
may be removed by a majority vote
at any time. Currently the Board
has an Interim Chairman and it is
expected that the 2010 AGM will
decide who will be the Chairman
going forward.
The directors are encouraged to
hold shares in the Company, which
the Board believes promotes a
common financial interest between
the members of the Board and
the shareholders of the Company.
In accordance with the General
Meeting’s resolution of 19 August
2009, the directors also received
in
50% of their remuneration
shares for 2009.
The current Board members are
listed below:
safety
James A. MacHardy,
Capt.
Interim Chairman
Capt. MacHardy has served on the
Board since 19 March 2007. Capt.
MacHardy was until recently CEO
of the Society of International Gas
Tanker and Terminal Operators
(SIGTTO). This organisation promotes
high
operational
and
standards in the industry sector
involved in marine transportation
and handling of liquefied gases.
SIGTTO has 158 members and
represents over 95% of the world’s
LNG tonnage and 60% of the LPG
tonnage. Capt. MacHardy has acted
as Marine Advisor to large LNG
projects such as Guangdong LNG
and BP Trinidad and Tobago. Capt.
MacHardy has held various positions
within the industry.
Dr. James D. A. (Ox) van Hoften,
Board member
Dr. van Hoften has served on the
Board since 19 March 2007. Dr.
van Hoften recently retired as a
Senior Vice President and Partner
of the Bechtel Corporation. He
was the Managing Director of
Bechtel’s Aviation business located
in London. Following a successful
astronaut career at NASA, Dr.
joined the Bechtel
van Hoften
Corporation in 1986 where he led
a number of major international
projects, and managed businesses
throughout the world, focusing on
complex infrastructure programs
in the civil, military and aerospace
arenas. In 1992, Dr. van Hoften led
Bechtel’s team as Project Director
for the New Hong Kong Airport
project, at $23 billion arguably the
largest infrastructure project ever
attempted. The award-winning
project was delivered on time and
$1.5 billion under budget. Dr. van
Hoften received a BSc Hons. in Civil
Engineering from the University of
California (Berkeley) in 1966 and
an MSc in Hydraulic Engineering
from Colorado State University at
Fort Collins in 1968. He returned to
CSU in 1974 to complete his PhD in
Hydraulic Engineering following his
tours in Southeast Asia.
Mr. Scott Pearl, Board member
Mr. Pearl has served on the Board
since 19 March 2007. Mr. Pearl is
a Director of Investment Research
at Seneca. In addition to FLEX LNG,
Mr. Pearl serves on the Board of
Directors of Altex Energy, Ltd.,
a developer of
transportation
solutions for oil bitumen in Alberta.
Mr. Pearl’s experience includes the
management of investments in both
public and private debt and equity
securities of energy companies, as
well as providing equity research
coverage to institutional investors in
the electric sector. Mr. Pearl also has
served as an advisor to numerous
energy companies with regard to
strategy, capital raising and merger
and
transactions.
Prior to joining Seneca, Mr. Pearl
was a Vice President of Equity
Research at Credit Suisse First
Boston. Previously, Mr. Pearl was
an Investment Banker for energy
companies at Credit Suisse First
acquisition
Boston and Lehman Brothers. Mr.
Pearl began his career as a project
financier
for Chase Securities,
Inc. Mr. Pearl is a graduate of the
Wharton School of Business at the
University of Pennsylvania.
Mr. Ian Beveridge,
Board member
Mr. Beveridge has served on the
Board since 2 October 2007. Mr.
Beveridge is the CEO of the Schulte
Group and has been associated
with the Schulte group for 16 years,
until 2006 as Managing Director.
Before that Mr. Beveridge worked
3.5 years with Coopers & Lybrand
in Johannesburg, leaving as Senior
Supervisor. Mr. Beveridge obtained
a Bachelor of Commerce (Honours)
in 1987 and qualified as a chartered
accountant in South Africa. Mr.
Beveridge is also member of the Gard
Board of Directors and the German
Committee of Det Norske Veritas.
Mr. Anders Westin,
Board member
Mr. Westin has served on the Board
since April 2008. Mr. Westin is
currently working for HBK Europe
Management LLP, a London based
affiliate of HBK Investments L.P. Mr.
Westin has been associated with HBK
since 2002. His primary responsibilities
are Nordic equity investments, as well
as equity investment in the European
oil & gas services and shipping
industries. In Mr. Westin’s role at
HBK his experience includes the
management of investments in both
public and private debt and equity
securities. From 2000 to 2002 Mr.
Westin worked for Enskilda Securities
in London and was responsible for
Special Situations Equity Research.
From 1998 to 2000 he was one of
the founding partners at Nordic
Partners, Inc, a New York based
equity brokerage firm. From 1995 to
1998 Mr. Westin worked as an equity
analyst at Öhman FK in Stockholm
Sweden. Mr. Westin received an
MSc in Business and Economics in
1994 from the Stockholm School of
Economics.
Consolidated and Company Annual Report and Financial Statement 2009 14
Corporate Governance Report
(continued)
8) Corporate assembly
and Board of Directors:
composition and
independence (continued)
Mr. Aoki Hiromichi,
Board member
Mr. Aoki has served on the Board
since July 2008. Mr. Aoki is an
Executive Officer of Kawasaki
Kisen Kaisha, Ltd. (“K”Line) and
is responsible for Energy Transport
Sector including natural gas, FPSO,
offshore support vessels, MODU
and other floating units. During
his 27-years career with “K”Line,
he has been a Project Manager
for LNG transport projects such
as Qatargas, RasGas, Snøhvit,
Tangguh and many others. He
was also a board member of
EnerSea Transport LLC until June
2008 having pursued the project
development of CNG. Before joining
LNG Group of “K”Line, he served
“K”Line as Resident Representative
in Rio de Janeiro and CarCarrier
Group besides studying under the
corporate scholarship in Business
School of Syracuse University,
NY and Law School of Tulane
University, LA. He holds a Bachelor
of Business Administration in 1981
from Shinshu University.
Mr. Philip Eystein Fjeld,
Board Member & Executive
Management CEO
Mr. Fjeld is the co-founder of FLEX
LNG, which was established in
August 2006 and is the CEO of
FLEX LNG Management Limited.
Prior to
joining FLEX LNG he
held the position of Commercial
Manager at Höegh LNG in Oslo,
where he had responsibility for the
commercial budget for two LNG
carriers on long-term charters to
gas majors. Business development
work at Höegh LNG encompassed
pre-qualification and offers
in
connection with standard LNG
shipping tenders, structuring and
negotiating LNG
time charter
parties and ship management
contracts, ship-sale negotiations
and marketing of FSRU conversions
and regasification vessel projects.
Mr. Fjeld has a nautical degree and
has served at sea as a deck officer in
the Royal Norwegian Coast Guard
and in the Merchant Navy. Mr.
Fjeld earned his Master’s Degree
in Strategy and Management from
the Norwegian School of Economics
and Business Administration.
The current Executive Management
are listed below (details for Mr Fjeld
detailed above):
Mr. Trym Tveitnes, PhD,
Chief Technical Officer
Mr. Tveitnes is the co-founder of
FLEX LNG, which was established
in August 2006 and is the CTO of
FLEX LNG Management Limited.
Mr. Tveitnes
joined FLEX LNG
in Bergen,
from a consultancy
Norway, specialising in onshore gas
transportation and distribution. Prior
to this he worked for the shipping
in Oslo,
company Höegh LNG
focusing on concept development
and
in
technical specifications
connection with the Neptune SRV
project as well as within Arctic LNG
transportation. Mr. Tveitnes also
has experience as Senior Engineer
at Det Norske Veritas working on
technological qualifications of
containment systems for large LNG
carriers and floating LNG import
terminals. Mr. Tveitnes holds a MSc.
in Naval Architecture and a PhD in
Hydrodynamics from the University
of Glasgow.
Jostein Ueland,
Chief Financial Officer
Mr. Ueland is the co-founder of
FLEX LNG, which was established
in August 2006 and is the CFO of
FLEX LNG Management Limited.
Mr. Ueland has worked within the
Investment Management Division
of Goldman Sachs International in
London and as an Equity Research
Analyst in Enskilda Securities ASA
in Oslo. He has first class experience
in valuing companies and was
responsible for the IPO research in
relation to the listing of APL ASA,
Sevan Marine ASA and Odfjell
Invest LTD. Mr. Ueland earned his
Master’s Degree in Finance from the
Norwegian School of Economics
and Business Administration.
LPG/LNG
Capt. Gary Baron,
Chief Operating Officer
joined FLEX LNG
Capt. Baron,
Management Limited in October
COO
2008 and became
in
December 2008.
He has 35
years of experience in the marine
and offshore industry, including
HSEQ management, FPSO and
FSO operations and conversion
projects,
operations,
supply boat and ROV operations,
and experience as pilot/loading
master. Prior to joining FLEX LNG,
he worked for Teekay Corporation
in Canada for nine years in a variety
of roles including LNG, CNG and
offshore business development
and HSEQ. Prior to joining Teekay,
he worked for Woodside Energy
and BHP Petroleum in Australia.
Capt. Baron also holds an MBA in
Maritime Management.
9) The work of the Board
of Directors
The Board approves an annual
plan for the business. In addition
policies have been approved that
cover the responsibilities of the
Board and those of the CEO, of
FLEX LNG Management Limited.
Through the establishment of the
Compensation, Technical, Audit and
Nomination Committees, the Board
has delegated some of its work to
these committees, yet retained the
responsibility for all decision making.
The Board is scheduled to meet in
person approximately four times a
year, and additionally approximately
eight times by telephone conferences,
but the schedule is flexible to react
to operational or strategic changes in
the market and Group circumstances.
In the last 12 months the Board has
convened more often.
Consolidated and Company Annual Report and Financial Statement 2009 15
Corporate Governance Report
(continued)
9) The work of the Board
of Directors (continued)
The main responsibilities of the
Board cover the following main
areas;
and
strategic planning
decision making for the executive
management to implement; ensure
Board
instructions are complied
with; remain well informed on the
Company’s and group financial
position; production of an annual
work plan; ensure the adequacy of
executive management and their
roles are clearly defined; annually
to review the most important areas
of risk exposure, including risks and
controls related to financial reporting;
ensuring an appropriate system of
direction, risk management and
internal control is established and
maintained; adopt guidelines for the
frequency and policy for external
financial reporting; and agree on
dividend policy.
The Chairman of the Board of Directors
carries a particular responsibility for
ensuring that the Board of Directors
performs its duties in a satisfactory
manner and that the Board is well
organised. The Board has the overall
responsibility for the management
of the Group and has delegated the
daily management and operations to
the CEO, Mr P. Fjeld, who is appointed
by and serves at the discretion of the
Board, and also reports to the Board.
Further, the CEO of the management
company, is responsible for ensuring
that the Company’s accounts are
in accordance with all applicable
legislation, and that the assets of the
Company are properly managed. His
or her powers and responsibilities are
defined in more detail by the Board
of Directors.
The CEO
is supported by the
other members of the executive
management team that currently
consists of Mr J. Ueland (Chief
Financial Officer), Mr T. Tveitnes
(Chief Technical Officer) and Mr G.
Baron
(Chief Operating Officer).
The executive management team
has the collective duty to implement
the Company’s strategic, technical,
financial and other objectives, as well
as to protect and secure the Group’s
organisation and reputation.
In the event that the Chairman of
the Board cannot attend a meeting
or is conflicted in leading the work of
the board, a deputy chairman will be
appointed for the meeting.
10) Risk management and
internal control
The Board, in conjunction with the
executive management, evaluates
the risks inherent in the operations
of FLEX LNG. Principal among these
risks currently are those relating to
construction, obtaining contractual
counterparties, financing of LNG
Producer vessels and the business,
In addition
and financial
risk.
the following risks
in
inherent
the business plan are monitored:
commodity prices, competition, the
political and regulatory environment,
counterparty performance,
the
planned growth of the business and
the proposed application of new
technology. The Board, through the
Audit Committee, ensures that FLEX
LNG has reliable internal control and
systems for risk management.
The Board is presented an annual
budget at the end of the preceding
financial year. Thereafter, the Board
is presented with a monthly liquidity
summary and a quarterly report
identifying material variations from
the approved budget. Explanations
are obtained for material variances.
The Audit Committee has the
responsibility
risk
exposure and
internal control
and report to the full Board on
an annual basis. The Board is also
presented financial statements on a
quarterly basis, which are reviewed
with the executive management.
FLEX LNG’s annual accounts provide
information on internal control and
risk management systems as they
relate to its financial reporting.
to evaluate
expertise,
11) Remuneration of the
Board of Directors
The remuneration of the members
of the Board of Directors
is
determined annually by the General
Meeting, on the basis of the Board’s
responsibility,
time
commitment and the complexity
of the Group’s operations, and
is disclosed in note 3 to the
financial
Through
statements.
the Company’s
remuneration
of directors, part of which has
in stock, the
historically been
Company has encouraged directors
to own shares in the Company.
The remuneration is not linked
to the Company’s performance.
No directors have been granted
or will be granted share options
and no directors are part of the
incentive programs available for
the executive management and/or
other employees, other than Mr P.
Fjeld in his capacity as an employee
of FLEX LNG Management Limited,
details in section 12 below.
As a general rule, no directors (or
companies with which they are
associated) shall take on specific
assignments for the Company in
addition to their appointment as
director. If such assignments are
made, it shall be disclosed to the
full Board and the remuneration
shall be approved by the Board.
Further, all
remuneration paid
to each of the directors shall be
described in the Annual Report.
Such description shall
include
details of all elements of the
remuneration and benefits of
each member of the Board, any
remuneration paid in addition to
normal director’s fees included.
12) Remuneration of the
executive management
The
executive management’s
remuneration shall be determined
by a convened meeting of the
Board of Directors. The Board
is advised by the remuneration
committee as to the appropriate
Consolidated and Company Annual Report and Financial Statement 2009 16
Corporate Governance Report
(continued)
special
characteristics
12) Remuneration of the
executive management
(continued)
level of salary and benefits to pay.
The committee shall when preparing
the guidelines take into account
the location of the management,
the level of remuneration normal
within the business of the Group,
the phase of the Group’s business
and
of
the different positions within
the executive management. The
guidelines shall include a summary
of the characteristics of employee
option schemes and bonus schemes
applicable to the Group. The process
aims to link the performance related
element of
remuneration,
the
(options, warrants and bonus) to
value creation for shareholders. The
current option program has been
approved by shareholders with the
allocation to staff determined by the
remuneration committee prior to
approval by the Board. The scheme
was designed to align employees
with shareholder value creation and
to attract competent persons in the
recruitment phase to a wide range
of positions within the Group and to
retain employees during the current
phase of the business.
information
the
on
Further
remuneration of
the executive
management is contained in note 3,
and options granted in note 13 to
the financial statements.
13) Information and
communications
FLEX LNG will ensure that the
shareholders receive accurate, clear,
relevant and timely information in
accordance with legal requirements.
Publication methods will be selected
to ensure simultaneous and equal
access for all equity shareholders to
the information is mainly provided
in English.
The Board of Directors has adopted
guidelines
the Company’s
reporting of financial and other
for
information based on openness,
equal treatment of all shareholders
and participants in the securities
market, and restrictions imposed
by law. The guidelines also include
information requirements to the
important
internal
treatment of
information and
trading
instructions and for the Company
group’s contact with shareholders
other
through General
Meetings.
insider
than
14) Take-overs
The Board of Directors has established
guiding principles for how it will act in
the event of a take-over bid. During
the course of a take-over process,
the Board has an
independent
responsibility to help ensure that
shareholders are treated equally, and
that the Company’s business activities
are not disrupted unnecessarily. The
board of the target company has a
particular responsibility to ensure
that shareholders are given sufficient
information and time to form a view
of the offer. The Board of Directors
and the executive management will
not seek to hinder or obstruct take-
over bids for the Company’s shares
or activities unless there are good
reasons for this. In the event of any
possible take-over or restructuring
situation the Board of Directors
will take particular care to protect
shareholder value and the common
interests of the shareholders. If an
offer is made for the Company’s
shares, the Board of Directors shall
issue a statement evaluating the
offer and making a recommendation
as to whether shareholders should
or should not accept the offer. If the
Board finds itself unable to give a
recommendation to shareholders on
whether or not to accept the offer,
it should explain the background for
not making such a recommendation.
The Board of Directors will not exercise
mandates or pass any resolutions to
obstruct the take-over bid unless
approved by the General Meeting
following announcement of the bid.
Any transaction that is a disposal of
the Company’s activities should be
decided by the General Meeting.
According to the Company’s Articles
of Association, a mandatory offer for
the remaining shares will be triggered
if a shareholder becomes the owner
of more than 30% of the shares in
the Company.
15) Auditors
The auditor submits
the main
features of the plan for the audit of
the Company to the audit committee
on an annual basis. The auditor does
not participate in meetings of the
Board of Directors that deal with
the annual accounts. Via the audit
committee the auditor reviews any
material changes in the Company’s
accounting principles, comments on
any material estimated accounting
figures and reports all material
matters on which there has been
disagreement between the auditor
and the executive management of the
Company. The company believes the
auditor does not need to be physically
present at the Company’s AGM given
the pre-commercial nature of the
Group. Annually the auditor presents
to the audit committee a review of
internal control
the Company’s
identified
procedures,
weaknesses and proposals
for
improvement. The Audit Committee,
rather than the full Board, holds a
meeting with the auditor at least once
a year at which no member of the
executive management is present. At
present the Company believes this is
sufficient given its size.
including
The Board of Directors have
in respect
established guidelines
of the use of the auditor by the
Company’s executive management
for services other than the audit. The
Board of Directors shall report the
remuneration paid to the auditor at
the AGM, including details of the fee
paid for audit work and any fees paid
for other specific assignments.
Consolidated and Company Annual Report and Financial Statement 2009 17
Income Statement - FLEX LNG Group & Company
Year ended 31 December 2009
(USD, 000)
Operating revenues
Other income
Gross revenues
Administrative expenses
Operating loss
Finance income
Loss before tax
Income tax expense
Loss after tax
Loss for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
Earnings per share (USD):
- Basic
- Diluted
Note
Note
Group
2009
Group
2008
Company
2009
Company
2008
0
0
0
(10,664)
(10,664)
393
(10,271)
186
(10,457)
(10,457)
(10,165)
(292)
(10,457)
Group
2009
(0.10)
3,6
4
7
5
5
0
0
0
(14,767)
(14,767)
2,786
(11,981)
0
(11,981)
(11,981)
0
0
0
(1,844)
(1,844)
387
(1,457)
0
(1,457)
(1,457)
(11,981)
(1,457)
0
0
(11,981)
(1,457)
0
0
0
(4,153)
(4,153)
2,786
(1,367)
0
(1,367)
(1,367)
(1,367)
0
(1,367)
Company
Company
Group
2008
(0.14)
2009
(0.01)
2008
(0.02)
(0.02)
(0.10)
(0.14)
(0.01)
Statement of Comprehensive Income - FLEX LNG Group & Company
Year ended 31 December 2009
(USD, 000)
Note
Loss for the year
Exchange differences on
translation
Other comprehensive (loss)
Total comprehensive loss
for the period
Attributable to equity holders of the
parent
Non-controlling interests
Group
2009
(10,457)
(291)
(291)
(10,748)
Group
2008
Company
2009
Company
2008
(11,981)
(1,457)
(1,367)
0
0
0
0
0
0
(11,981)
(1,457)
(1,367)
(10,456)
(11,981)
(1,457)
(1,367)
(292)
(10,748)
0
0
(11,981)
(1,457)
0
(1,367)
Consolidated and Company Annual Report and Financial Statement 2009 18
Statement of Financial Position – FLEX LNG Group & Company
As at 31 December 2009
(USD, 000)
ASSETS
Non-current assets
New building contracts
Plant and equipment
Intangible assets
Loans and investments
Total non-current assets
Current assets
Other current assets
Cash and cash equivalents
Total current assets
TOTAL ASSETS
EQUITY AND LIABILITIES
Equity
Issued capital
Share premium
Other equity
Equity attributable to equity
holders of the parent
Non-controlling interests
Total equity
Non-current liabilities
Other financial liabilities
Total non-current liabilities
CURRENT LIABILITIES
Accounts payable
Accruals and other payables
Total current liabilities
Total liabilities
Note
Group
2009
Group
2008
Company
2009
Company
2008
8
9
2
2
10
11
12
12
2
14
516,391
385
36,251
0
493,975
0
0
0
553,027
493,975
925
25,679
26,604
1,325
49,499
50,824
0
0
0
532,617
532,617
147
24,645
24,792
0
0
0
504,589
504,589
1,325
49,499
50,824
579,631
544,799
557,409
555,413
1,127
552,243
(16,729)
536,641
33,147
569,788
6,415
6,415
443
2,985
3,428
9,843
1,024
543,417
(8,152)
536,289
1,127
552,243
2,884
556,254
1,024
543,417
2,462
546,903
0
0
0
536,289
556,254
546,903
0
0
7,722
788
8,510
8,510
0
0
54
1,101
1,155
1,155
0
0
7,722
788
8,510
8,510
TOTAL EQUITY AND LIABILITIES
579,631
544,799
557,409
555,413
Board of Directors of FLEX LNG Ltd - 27 April 2010
James MacHardy
Interim Chairman
Aoki Hiromichi
Philip Fjeld
Anders Westin
Scott Pearl
Ian Beveridge
James van Hoften
Consolidated and Company Annual Report and Financial Statement 2009 19
Statement of Changes in Equity - FLEX LNG Group
Share
capital
726
298
Share
premium
reserve
207,339
349,780
(13,702)
Retained
earnings
(2,111)
(11,981)
Other
reserves
1,678
1,024
543,417
(14,092)
1,024
543,417
(14,092)
(10,165)
(291)
(10,456)
Issue of share capital
103
Expenses related to share issue
Cost of share-based payment
9,897
(1,071)
Year ended 31 December 2009
(USD, 000)
Group Group
Equity as at 01.01.08
Loss for the year
Issue of share capital
Expenses related to share issue
Cost of share-based payment
- warrants
- options
- shares
Attributable to equity
holders 31.12.08
Equity as at 01.01.09
Loss for the year
Exchange on translation
Total comprehensive income
- warrants
- options
- shares
Attributable to equity
holders 31.12.09
Non-controlling interest
Non-controlling interests P&L share
Total
equity
207,632
(11,981)
350,078
(13,702)
3,085
1,071
106
536,289
536,289
(10,165)
(291)
(10,456)
10,000
(1,071)
900
789
190
3,085
1,071
106
5,940
5,940
900
789
190
1,127
552,243
(24,548)
7,819
536,641
Total equity as at 31.12.09
1,127
552,243
(24,548)
33,439
(292)
40,966
33,439
(292)
569,788
Consolidated and Company Annual Report and Financial Statement 2009 20
Statement of Changes in Equity - FLEX LNG Ltd
Share
capital
726
298
Share
premium
reserve
207,339
349,780
(13,702)
Retained
earnings
(2,111)
(1,367)
Other
reserves
1,678
1,024
543,417
(3,478)
1,024
543,417
(3,478)
(1,457)
(1,457)
Issue of share capital
103
Expenses related to share issue
Cost of share-based payment
9,897
(1,071)
Year ended 31 December 2009
(USD, 000)
Company
Equity as at 01.01.08
Loss for the year
Issue of share capital
Expenses related to share issue
Cost of share-based payment
- warrants
- options
- shares
Attributable to equity
holders 31.12.08
Equity as at 01.01.09
Loss for the year
Total comprehensive income
- warrants
- options
- shares
Attributable to equity
holders 31.12.09
Total
equity
207,632
(1,367)
350,078
(13,702)
3,085
1,071
106
546,903
546,903
(1,457)
(1,457)
10,000
(1,071)
900
789
190
3,085
1,071
106
5,940
5,940
900
789
190
1,127
552,243
(4,935)
7,819
556,254
Consolidated and Company Annual Report and Financial Statement 2009 21
Statement of Cash Flows - FLEX LNG Group
Year ended 31 December 2009
(USD, 000)
Group
Cash flow from operating activities
Loss before tax
Adjustment to reconcile loss before tax to net cash flow
Note
2009
2008
(10,271)
(11,981)
Non Cash:
Finance income
Option and warrant costs
Share based payment expense
Depreciation
P&L on asset disposal
Working capital adjustments:
Increase in prepayments
Decrease / increase in trade and other receivables
Decrease / increase in trade and other payables
Income taxes paid
Interest received
Net cash flow from operating activities
Cash flows from investing activities
Purchase of plant and equipment
Payments for intangible assets
Payment on new building contracts &
capitalised expenditure
Acquisition of subsidiary, net of cash acquired
Net cash flow used in investing activities
Cash flows from financing activities
Proceeds from issue of share capital
Costs of share issue
Proceeds from sale of fixed assets
Proceeds from deferred payments
Net cash flow from financing activities
Net currency translation effect
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
4
13
13
9
9
8
2
12
14
11
(393)
1,689
190
250
(21)
(183)
1,221
(7,657)
(15,175)
(52)
407
(14,820)
(110)
(957)
(22,416)
(423)
(23,906)
10,000
(1,071)
61
6,207
15,197
(291)
(23,529)
49,499
25,679
(2,786)
4,156
182
0
0
(65)
(1,082)
8,294
(3,282)
0
2,786
(496)
0
0
(300,646)
0
(300,646)
350,002
(13,702)
0
0
336,300
0
35,158
14,341
49,499
Consolidated and Company Annual Report and Financial Statement 2009 22
Statement of Cash Flows - FLEX LNG Ltd
Year ended 31 December 2009
(USD, 000)
Company
Cash flow from operating activities
Loss before tax
Adjustment to reconcile loss before tax to net cash flow
Non Cash:
Finance income
Option and warrant costs
Share based payment expense
Working capital adjustments:
Increase in prepayments
Decrease / increase in trade and other receivables
Decrease / increase in trade and other payables
Interest received
Net cash flow from operating activities
Cash flows from investing activities
Loans and investments in subsidiaries
Net cash flow used in investing activities
Cash flows from financing activities
Proceeds from issue of share capital
Costs of share issue
Net cash flow from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Note
2009
2008
(1,457)
(1,367)
4
13
13
2
12
11
(387)
1,689
190
65
1,099
(7,355)
(6,156)
401
(5,755)
(28,028)
(28,028)
10,000
(1,071)
8,929
(24,854)
49,499
24,645
(2,786)
4,156
182
(65)
(1,082)
8,294
7,332
2,786
10,118
(311,260)
(311,260)
350,002
(13,702)
336,300
35,158
14,341
49,499
Consolidated and Company Annual Report and Financial Statement 2009 23
Liquefaction Process
(cid:766) Optimized dual nitrogen expander cycle
(cid:766) Proven track record onshore and on LNG carriers with reliquefaction
(cid:766) Designed for a large range of feed gas compositions, from rich to lean
(cid:766) Operational simplicity, quick start up and shut down, low equipment count and easier
control
(cid:766) Improved safety by avoiding the use of hydrocarbon refrigerants
(cid:766) Single phase N2 refrigerant, not sensitive to vessel motions
(cid:766) High production availability achievable with low complexity
(cid:766) Overall efficiency equivalent to on-shore LNG plants achieved through process
optimisations and high efficiency equipment for power generation and compression in
combination with waste heat recovery
(cid:766) Minimum space, weight and equipment required for the generic liquefaction, providing
Note 1: General information and significant accounting policies
for maximum space and weight reserve for field specific equipment
1.1 Basis for preparation
FLEX LNG Ltd is a limited liability company, incorporated in the British Virgin Islands. The FLEX LNG group of companies (the
“Group”) includes seven 100% owned subsidiaries, as shown under note 2 below and the Company’s interest in Minza Oil
& Gas Ltd. The Group’s activities are focused on developing production and storage of liquefied natural gas. The accounts for
FLEX LNG Ltd are unconsolidated and in the following notes it is specified when the detail relates to the consolidated group or
the parent company only.
Fieldspecific
Topside
Generic Topside
The financial statements have been prepared in accordance with the International Financial Reporting Standards as adopted by
EU and valid as of 31.12.09. The financial statements have been prepared on an historical cost basis, except for the valuation
of warrants and options, which are accounted for at fair value. The financial statements have also been prepared on a going
concern basis, additional information is included in notes 18 and 19.
(cid:766) Upstream of the generic topside the feed gas is treated in the field specific modules
Unique Field Specific Adaptability
The following standards were implemented in 2009;
to separate bulk amounts of condensate and water. Other process systems as required
is also located in the field specific modules, such as MEG reclamation, N2 rejection and
bulk CO2 removal and reinjection
(cid:766) The generic topside receives feed gas with the equivalent of pipeline specification
(<1.5% CO2) and removes CO2, water and mercury to LNG quality before liquefaction
takes place
(cid:766) A large area reserved and prepared for field specific modules and the field specific
module will be tailored to the project requirements
IAS 1 (revised), Presentation of financial statements
The revised standard will prohibit the presentation of items of income and expenses (that is, ‘non-owner changes in equity’) in
the statement of changes in equity, requiring ‘non-owner changes in equity’ to be presented separately from owner changes
in equity. All non-owner changes in equity will be required to be shown in a performance statement, but entities can choose
whether to present one performance statement (the statement of comprehensive income) or two statements (the income
statement and statement of comprehensive income). Where entities restate or reclassify comparative information, they will be
required to present a restated balance sheet as at the beginning comparative period in addition to the current requirement to
present balance sheets at the end of the current period and comparative period. The Group and the Company will apply IAS
1 (Revised) from 1 January 2009. Both the income statement and statement of comprehensive income will be presented as
performance statements.
Examples of combinations of field specific topside systems
Medium rich feed gas with high CGR
(cid:766) Inlet separation
(cid:766) Produced water treating
(cid:766) Condensate production
(cid:766) Chemical injection
(cid:766) Pre-compression for late field life
LPG rich feed gas & flow assurance
(cid:766) Inlet separation
(cid:766) Produced water treating
(cid:766) Condensate production
(cid:766) LPG production
(cid:766) MEG reclamation and injection
IFRS 2 (Amendment), Share based payment
This clarifies vesting conditions and the treatment where an award is cancelled. This has had no impact on the financial
position.
Nitrogen rich feed gas
(cid:766) Inlet separation
(cid:766) Produced water treating
(cid:766) Condensate production
(cid:766) Chemical injection
(cid:766) Nitrogen rejection
CO2 rich feed gas
(cid:766) Inlet separation
(cid:766) Produced water treating
(cid:766) Condensate production
(cid:766) Chemical injection
(cid:766) Bulk CO2 removal and reinjection
2 x LM6000 & N2 Cycle compression
Utility & BOG compression
Liquefaction
Pre-treatment removal of:
CO2 ; H2O; Hg
© Flex LNG Management Ltd 2009. All rights reserved.
IFRS 8 Operating Segments
Field specific:
Field specific:
Bulk CO2 Removal & reinjection;
Inlet separation, Condensate stabilization,
At present the Group has only one business segment and this will have no immediate impact on the reported results.
LPG handling
MEG; Nitrogen rejection
IAS23 Borrowing costs (Revised)
This requires capitalisation of borrowing costs that are directly attributable to construction of assets. In 2009 the Group has
capitalised interest costs of $143k.
At the end of 2009, some new standards, changes in existing standards and interpretations have been issued, but not yet
become effective:
IFRS 3 Business Combinations; IFRS 9 Financial Instruments; IAS 24 Related Party Disclosures; and IAS 27 Consolidated and
Separate Financial Statements.
IFRS 3 (revised) is expected to impact the accounting for future acquisitions primarily regarding goodwill, contingent consideration
and transaction costs. IFRS 9 will replace the recognition and measurement rules in the current IAS 39. Considering the current
scope and use of financial instruments, the impact of the changes is not expected to have any material effects. The changes
in IAS 24 are not expected to be material. Revised IAS 27 could affect the consolidated accounts in cases of derecognition of
subsidiaries and allocations between controlling and non-controlling parties.
Additionally the following changes in existing standards and interpretations mentioned below has been issued, but not yet
become effective. The amendments and interpretations are not expected to be relevant for the Group or Company.
IFRS 2 (amendment) Share based payment; IAS 32 (amendment) Financial Instruments; IAS 39 (amendment) Financial
Instruments; IFRIC 12 Service Concession Arrangements; IFRIC 14 IAS 19 The Limit on a Defined Benefit Asset, Minimum
Funding; IFRIC 15 Agreements for the Construction of Real Estate; IFRIC 16 Hedges of a Net Investment in a Foreign Operation;
IFRIC 17 Distributions of Non-Cash Assets to Owners; IFRIC 18 Transfer of Assets from Customers; and IFRIC 19 Extinguishing
Financial Liabilities with Equity Instruments.
The IASB Annual Improvement Project has approved changes in several standards with effect from 2010. Changes that might
Consolidated and Company Annual Report and Financial Statement 2009 24
Note 1: General information and significant accounting policies (continued)
1.1 Basis for preparation (continued)
affect recognition, measurement and disclosure are listed below.
IAS 7 Statement of Cash Flows; IAS 36 Impairment of Assets; and IAS 39 Financial Instruments. The Company currently believes
that these changes will not have a material impact on the Group or Company.
1.2 Functional currency and Presentation currency
The Group’s presentation currency is USD. This is also the functional currency of all companies in the group, apart from FLEX
LNG Management (Norway) AS which is NOK based. Subsidiaries with a different functional currency are translated using the
period end rate for balance sheet items and an average rate for the income statement. Translation differences are charged
against other comprehensive income. When a foreign subsidiary is partially or completely disposed of or sold, translation
differences connected to the subsidiary are recognised in the income statement.
1.3 Basis of consolidation
The Group’s consolidated financial statements comprise FLEX LNG and companies in which it has a controlling interest. A
controlling interest is normally attained when FLEX LNG owns, either directly or indirectly, more than 50% of the shares in
the company and is capable of exercising control over the company, including call options over the shares. Non-controlling
interests are included in the Group’s equity. Details on subsidiaries are provided in note 2. The financial statements of the
subsidiaries are prepared for the same reporting year as the parent company, FLEX LNG, using consistent accounting principles.
The acquisition of an asset, group of assets or entity that does not constitute a business is not a business combination. In such
cases the acquirer will identify and recognise the individual identifiable assets acquired and liabilities it assumes. The cost of the
acquisition should be allocated to the individual identifiable assets and liabilities on the basis of their relative fair value at the
date of purchase.
Intragroup transactions and balances, including internal profits and unrealised gains and losses, have been eliminated in
full. Unrealised gains from transactions with associated companies are eliminated in the FLEX LNG’s share of the associated
companies. Correspondingly, unrealised losses are eliminated, but only if there are no indications of any impairment in the value
of the asset that is sold internally. The consolidated financial statements have been prepared under the assumption of uniform
accounting principles for equal transactions and other events under equal circumstances.
1.4 Use of estimates and judgements when preparing the annual financial statements
The annual financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS).
This means that management has used estimates and assumptions that have affected assets, liabilities, revenues, expenses
and information on potential liabilities. Future events may lead to these estimates being changed. Changes to accounting
estimates are included in the financial statements for the period in which the change occurs. If the changes also apply to future
periods, the impact is spread over the current and future periods. The estimates and underlying assumptions are based on past
experience and other factors perceived to be relevant and probable when the judgements were made. The judgements affect
the carrying amounts of assets and liabilities when no other sources have been applied in the valuation. Estimates are reviewed
on an ongoing basis and revisions to accounting estimates are recognised in the period, which the estimates are revised. The
inputs to the fair value calculations are based on observable market data when available, but where this is not achievable; a
degree of judgement is required in establishing fair values. The judgements include consideration of inputs such as liquidity risk,
credit risk and volatility. Changes in these assumptions could impact the reported fair value.
Significant accounting judgements – new build contracts
Costs are capitalised as per note 1.8. In determining amounts that are capitalised, management makes assumptions regarding
future cash generation from these assets. Costs are split between the different vessels based on management’s view on benefits
derived from the expenses incurred. The carrying value is calculated on a value in use basis and as a going concern.
Significant accounting judgements – Minza
Acquisition costs are calculated as per note 2. The final amount to pay will depend on the USD/GBP exchange rate, the
confirmation of reserve certification and gas composition, and the achievement of FID.
1.5 Currency transactions
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of
the transactions. Monetary items are retranslated at the period end exchange rate, non-monetary items that are measured at
historical cost are translated at the rate in effect on the original transaction date, and non-monetary items that are measured
at fair value are translated at the exchange rate in effect at the time when the fair value was determined.
Foreign exchange gains and losses resulting from the settlement of such cash transactions and from the translation at year-end
exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.
Consolidated and Company Annual Report and Financial Statement 2009 25
Note 1: General information and significant accounting policies (continued)
1.6 Segments
The Group is operating only one segment with respect to products and services. Segment reporting is thus not relevant.
1.7 Income tax
Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered
from or paid to the taxation authorities. The tax rates and tax laws used to compute the amounts are those enacted or
substantively enacted by the balance sheet date.
The Group consists of two legal entities incorporated in the British Virgin Islands, five entities in the Isle of Man, one in Norway,
and Minza Oil & Gas Ltd. which is incorporated in Jersey.
1.8 Non-current assets
Non-current assets are carried at cost less accumulated depreciation and impairment losses. When assets are sold or disposed
of, the gross carrying amount and accumulated depreciation are derecognised, and any gain or loss on the sale or disposal is
recognised in the income statement.
The depreciation period and method will be reviewed annually to ensure that the method and period used are in accordance
with the financial realities of the fixed asset. This applies correspondingly to the scrap value.
The gross carrying amount of non-current assets is the purchase price, including duties/taxes and direct acquisition costs
relating to making the non-current asset ready for use. Subsequent costs, such as repair and maintenance costs, are normally
recognised in profit or loss as incurred. When increased future economic benefits as a result of repair/maintenance work can
be proven, such costs will be recognised in the balance sheet as additions to non-current assets.
In accordance with IAS 16, the carrying value also includes capitalised expenses directly attributable to the asset in order to bring
it to the location and condition for use in the intended manner. Such expenses include compensation for employees, travel costs,
consultant fees, legal costs, engineering and design costs, plus other costs that are directly attributable to the assets. Capitalisation
would cease once the asset is in the location and condition necessary for it to be able to operate in the manner consistent with its
intended design.
Depreciation is calculated using the straight-line method over the following periods:
Vessels: 20 years
Periodic maintenance: 5 years
The payments on new building contracts are considered to be assets under construction and are accounted for in accordance
with IAS 16. The credit terms for the payment are considered to be normal for the industry and therefore the payment is booked
at nominal value.
The first vessel under construction is expected to be delivered as early as 2013. The total expenditure of the vessel will be
decomposed to groups of components that have different expected useful lives. The different groups of components will be
depreciated over their expected useful lives. Upon delivery of the vessel this decomposition would be made.
Intangible assets are measured on initial recognition at cost. Following recognition they are carried at cost less any accumulated
amortisation and any accumulated impairment losses. The amortisation period is reviewed on an annual basis, with any
amortisation or impairment charge recognised in the income statement.
Depreciation on plant and equipment is calculated using the straight-line method to depreciate assets over their useful life. The
following periods have been used:
IT Equipment: 2 years
Furniture and Fittings: 5 years
Shares in the subsidiaries and loans provided to the subsidiaries are evaluated at the lower of cost and fair value. When the
value of estimated future cash flows is lower than the carrying value in the subsidiaries, the Company recognises impairment
charges on investments in subsidiaries and intercompany receivables. If and when estimated recoverable amounts increase,
impairments charges are reversed. There is currently no repayment plan on the loans and no interest charged.
Consolidated and Company Annual Report and Financial Statement 2009 26
Note 1: General information and significant accounting policies (continued)
1.9 Impairment of assets
Other assets
An assessment of impairment losses on other assets is made when there is an indication of a fall in value. If an asset’s carrying
amount is higher than the asset’s recoverable amount, an impairment loss will be recognised in the income statement. The
recoverable amount is determined separately for all assets but, if this is impossible, it is determined together with the entity to
which the assets belong. An impairment loss occurs when the carrying amount exceeds the recoverable amount, which is the
higher of value in use or the net sells price. The value in use is calculated using the present value of estimated future cash flows.
The calculation is preformed at the vessel level for assets under construction.
Financial instruments
Financial instruments are reviewed at each balance sheet date in order to discover any decrease in value.
Financial assets which are valued at amortised cost are written down when it is probable that the Company will not recover all
the amounts relating to contractual issues for loans, receivables or hold-to-maturity investments. The amount of the impairment
loss is recognised in the income statement. Any reversal of previous impairment losses is recognised when a reduction in the
need to write down the asset can be related to an event after the impairment loss has been recognised. Such a reversal is
presented as income. However, an increase in the carrying amount is only recognised to the extent that it does not exceed what
the amortised cost would have been if the impairment loss had not been recognised.
Trade receivables
Trade receivables are carried at amortised cost. The interest element is disregarded if it is insignificant. Should there be objective
evidence of a fall in value, the difference between the carrying amount and the present value of future cash flows is recognised
as a loss, discounted by the receivable amount’s effective interest rate.
1.10 Cash and cash equivalents
Cash includes cash in hand and at bank. Cash equivalents are short-term liquid investments that can be converted into cash
within three months and to a known amount, and which contain insignificant risk elements.
The cash and cash equivalent amount in the cash flow statement includes overdraft facilities. The cash flow statement has been
prepared in accordance with the indirect method.
1.11 Provisions, contingent liabilities and assets
Provisions are accounted for in accordance with IAS 37, Provisions, Contingent Liabilities and Contingent Assets. Provisions
are recognised when, and only when, the company has an existing liability (legal or assumed) as a result of events that have
taken place, it can be demonstrated as probable (more likely than not) that a financial settlement will be made as a result of
the liability, and the amount can be measured reliably. Provisions are reviewed at each balance sheet date and the level reflects
the best estimate of the obligation. When the time factor is insignificant, the size of the provisions will be equal to the size of
the expense required for redemption from the obligation. When the time factor is significant the provisions will be equal to the
net present value of future payments to cover the obligation. Increases in provisions due to the time factor will be presented
as interest expenses.
Contingent liabilities are defined as;
i. Possible obligations resulting from past events whose existence depend on future events.
ii. Obligations that are not recognised because it is not probable that they will lead to an outflow of resources.
iii. Obligations that cannot be measured with sufficient reliability.
Contingent liabilities are not recognised in the annual financial statements apart from contingent liabilities which are acquired
through the acquisition of an entity. Significant contingent liabilities are stated, with the exception of contingent liabilities
where the probability of the liability occurring is remote.
A contingent asset is not recognised in the annual financial statements, but is stated if there is a certain level of probability that
a benefit will accrue to the Group.
New information on the Group’s positions at the balance sheet date is taken into account in the annual financial statements.
Events after the balance sheet date that do not affect the company’s position at the balance sheet date, but which will affect
the Group’s position in the future are stated if significant.
1.12 Warrants and share based payments – equity settled transactions
The fair value of the warrants is estimated at the grant date and recognised as an expense over the vesting period. The Quanto-
Barrier Option pricing model has been used to calculate the fair value of the warrants.
Consolidated and Company Annual Report and Financial Statement 2009 27
Note 1: General information and significant accounting policies (continued)
1.12 Warrants and share based payments – equity settled transactions (continued)
Fair value of warrants granted for consulting services fees is measured at the fair value of the services received.
The fair value of the share options has been calculated using the Black-Scholes-Merton option pricing model.
The cost of the options and warrants is recognised over the period in which the performance is fulfilled, ending at the date on which
the relevant employees become entitled to the award. This includes an assessment of the implicit future service requirement of the
award. The expense at each reporting date is based on the Group’s best estimate of the number of equity instruments that will vest.
The income statement reflects the movement in the cumulative expense recognised as at the beginning and the end of the period.
Directors of the Company received part of their remuneration in the form of share-based payment transactions. The value of
the services is recognised at the fair value of the shares received.
1.13 Option accounting
Where it is considered that a call option does not give access to all the benefits associated with the ownership interest, then
the implementation guidance in IAS 27 (as amended in 2008) and IAS 27 (2007) states that in such situations the ‘instruments
containing the potential voting rights are accounted for in accordance with IAS 39’. This means that the call option over the
shares in a subsidiary has initially been recognised as part of the intangible asset value at its fair value with any subsequent
changes in its fair value being reflected in the income statement.
1.14 Borrowing costs
Where borrowing costs are directly attributable to the acquisition, construction or production of a qualifying asset they are
capitalised as part of the qualifying asset.
Note 2: Subsidiaries
The following subsidiaries are included in the consolidated financial statements:
Company
M-FLEX 1 Limited
M-FLEX 2 Limited
M-FLEX 3 Limited
M-FLEX 4 Limited
FLEX LNG Management Limited
Country of
registration
Isle of Man
Isle of Man
Isle of Man
Isle of Man
Isle of Man
FLEX LNG Management (Norway) AS
Norway
FLEX Petroleum Limited
Minza Oil & Gas Limited
British Virgin
Islands
Jersey
FLEX LNG Ltd – Loans and investments in subsidiaries
Company (USD 000)
M-FLEX 1 Limited
M-FLEX 2 Limited
M-FLEX 3 Limited
M-FLEX 4 Limited
FLEX Petroleum Limited
Main
operations
Ownership
share
Voting share
Shipping
Shipping
Shipping
Shipping
Management
services
Management
services
Holding
company
Gas
Development
100%
100%
100%
100%
100%
100%
100%
5%
2009
228,753
100,445
100,124
99,995
3,300
532,617
100%
100%
100%
100%
100%
100%
100%
5%
2008
123,541
96,709
96,389
187,950
0
504,589
Loans to 100% subsidiaries are unsecured, interest free and repayable on 30 days notice. It is currently not the intention of FLEX LNG to
call in these loans. The loans have been used to cover stage and other payments to Samsung, capitalised costs, running costs and an
Consolidated and Company Annual Report and Financial Statement 2009 28
Note 2: Subsidiaries (continued)
allocated share of the management recharge. The amounts advanced by FLEX Petroleum Limited to Minza Oil & Gas Ltd are interest free
and repayable or convertible into additional share capital in the period from the expiry of the option and the following 12 months.
Should FLEX Petroleum Limited not elect to exercise its option to acquire the remaining shares of Minza Oil & Gas Ltd the loan will be
repayable to FLEX Petroleum Limited.
Acquisition
On 1 January 2009, the Company acquired 100% of the voting shares of FLEX LNG Management Limited for £2. This company
and its subsidiary FLEX LNG Management (Norway) AS had previously being providing management services to the Group; they
have no third party sales. The acquisition has been accounted for using the purchase method of accounting. Based on a fair
value review an adjustment has been made for the value of future property lease payments. The financial statements include
the results of the management companies for the twelve months from acquisition. As the entity has no external sales any profit
or loss is eliminated on consolidation, the cost recharge for the year was $12.4m.
The fair value of the assets and liabilities of FLEX LNG Management Limited as at the date of acquisition were;
(USD 000)
Property, plant and equipment
Receivables
Cash
Payables
Net Assets
Goodwill on acquisition
Acquisition cost
Fair value
Book value
560
637
1,265
2,462
2,115
347
560
637
1,265
2,462
2,462
0
0
0
The acquisition cost of a nominal £2 comprised a cash payment and gives rise to a net cash inflow of $1,265k. The management
companies have no third party sales and have had no impact on the trading position for the last 12 months.
Purchase of Assets
In June 2009 the Company and its 100% owned subsidiary FLEX Petroleum Limited entered into an agreement with Minza Oil
& Gas Ltd (“Minza”) and its shareholder covering the following: the purchase of a minority share (5%); a call option payment
allowing the Group to purchase the remaining shares in Minza at an agreed price within a 12 month option period, expiring in
2010; further limited funding for Minza to pay down debt and fund its operations over the option period; and further payments
dependant on reserve certification and project approval. The Company continues negotiations with potential partners and
financing sources to fund and to allow the Minza option to be exercised.
The investment has been accounted for as an acquisition of assets. The individual assets and liabilities acquired have been
separately recognised, with the cost of the acquisition allocated to the individual assets and liabilities, based on the fair value
at the date of purchase. No goodwill has been recognised on the purchase and the majority share of the purchase has been
recognised as a non-controlling interest.
The book value of the assets and liabilities of Minza Oil & Gas Ltd at purchase were;
(USD 000)
Intangibles, plant and equipment
Cash
Total assets
Payables and loans
Net Assets
Book value
758
12
770
2,543
(1,773)
The results have been included from June 2009 in the consolidated numbers. The loss for the period to 31 December 2009 was
£307k with $292k being recognised as non-controlling interests.
Consolidated and Company Annual Report and Financial Statement 2009 29
Note 2: Subsidiaries (continued)
The breakdown of the intangible carrying amounts at 31 December was;
(USD 000) - Group
On acquisition
Exploration costs incurred
Expected acquisition costs
Total
2009
752
957
34,542
36,251
The expected acquisition cost includes the purchase option, cost £1, but included at estimated fair value of $855k.
Note 3: Administrative expenses
3.1 Included in administration expenses
(USD 000)
Depreciation
P&L on disposal of assets
Net foreign exchange differences
Calculated fair value of warrants
Calculated fair value of options
Group
2009
250
(21)
420
900
789
Group
2008
Company
2009
Company
2008
0
0
0
3,085
1,071
0
0
(46)
900
789
0
0
0
3,085
1,071
3.2 Auditors
Expensed fee to the auditors is divided into the following services (exclusive of VAT):
(USD 000)
Audit
Tax assistance
Consultancy services
Total Auditor’s fees
Group
2009
100
250
72
422
Group
2008
Company
2009
Company
2008
74
273
28
375
16
31
72
119
59
273
28
360
The consultancy fee in 2009 related to the IPO and the cost has been reflected in equity.
3.3 Remuneration
FLEX LNG has seven Directors, but no employees. All staff are employed by the two management companies.
Staff costs
(USD 000)
Wages and salaries
Social security costs
Pension costs
Total employee benefit expenses
Group
2009
4,736
574
207
5,517
Group
2008
Company
2009
Company
2008
0
0
0
0
0
0
0
0
0
0
0
0
Share based payments are covered in note 13. Employees are offered a fixed base salary. In 2009 a retention payment equal
to 8% of salary was paid to key staff. In 2010 the employees have been offered a performance related salary element. This
is linked to key commercial contract goals and varies depending on staff seniority. The company contributes to a defined
contribution pension scheme for staff. UK staff are offered additional health insurance. The number of man-labour years in
2009 was 41 (2008 – nil).
Consolidated and Company Annual Report and Financial Statement 2009 30
Note 3: Administrative expenses (continued)
3.3 Remuneration (continued)
Directors fees FLEX LNG
(USD 000)
James A. MacHardy
Philip E. Fjeld
Scott Pearl
James D.A. Van Hoften
Ian Beveridge
Anders Westin
Aoki Hiromichi
William Smith (resigned 2008)
Total Directors’ fees (see note 13)
Company
2009
Company
2008
80
50
50
50
50
50
50
0
38
50
50
50
50
37
22
80
380
377
In 2009 the Directors of FLEX LNG waived the right to receive shares covering 50% of their 2008 H2 salary. The value of these
shares was $106k and was part of the $377k salary cost in 2008. In 2009, where directors have taken on directorships of
subsidiary companies, they have received an annual fee of $2k per company on a pro rata basis. $9.3k per person, was paid for
services provided by Mr. Fjeld, Mr. Hoften, Mr. Beveridge and Mr. Hiromichi in the year. All earnings and shares for Mr. Beveridge
are assigned to Bernhard Schulte Investment Holding and for Mr. Hiromichi to Kawasaki Kisen Kaisha Ltd.
Executive Management
(USD 000)
Philip Fjeld
Jostein Ueland
Trym Tveitnes
Gary Baron
2009
2008
Salary
250
250
250
245
995
0
Sundry
benefits
Pension
Option
costs
3
2
3
2
10
0
13
12
13
12
50
0
37
38
37
18
130
0
Group
Total
303
302
303
277
1,185
0
The Executive Management receive remuneration via the management company FLEX LNG Management Limited. Mr. Fjeld,
Ueland and Tveitnes do not have contracts of employment and their termination rights are determined by statute. Mr Baron has
a contract of employment that gives a three month notice period. Options and warrants have been granted as follows Mr Fjeld,
Ueland and Tveitnes 46,800 options each held personally (issued 22/07/08) and warrant and options via Hansa LNG Limited as
detailed note 13 and 15. Mr Baron holds 90,000 options, issued 27/10/08 and 01/01/09.
Note 4: Finance costs and revenue
Finance revenue
(USD 000)
Interest income
Total financial revenue
Note 5: Earnings per share
Group
2009
393
393
Group
2008
2,786
2,786
Company
2009
Company
2008
387
387
2,786
2,786
Basic earnings per share amounts are calculated by dividing the net loss for the year by the weighted average number of
ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net loss by the weighted average number of shares
outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all
dilutive potential shares.
Consolidated and Company Annual Report and Financial Statement 2009 31
Note 5: Earnings per share (continued)
The following reflects the loss and share data used in the earnings per share calculation.
Earnings per share:
Loss attributable to shareholders – Group $’000
Loss attributable to shareholders – Company $’000
2009
(10,165)
(1,457)
2008
(11,981)
(1,367)
Weighted number of ordinary shares
104,213,188
87,715,513
Effect of dilution:
Share options 1
Warrants 2
0
0
0
0
Weighted average number of shares, adjusted for dilution
104,213,188
87,715,513
1 the options are out of the money
2 the impact of warrants is anti dilutive and excluded 2008, out of the money in 2009
Note 6: Management fees
There are no employees in FLEX LNG Ltd. A contract for management services is entered with FLEX LNG Management
Limited (“FLML”) and its subsidiary. According to this agreement, FLML will render services to the Group relating to general
administration and contract management. FLML is entitled to a compensation covering all its expenses plus a mark-up. A new
management agreement covering the 2009 year was agreed on 5 March 2009. The total compensation for 2009 was $12,381k
(2008: $9,965k).
Note 7: Income tax
The Group consists of two legal entities incorporated in the British Virgin Islands (BVI), and five entities in the Isle of Man, one
entity in Norway and the Company’s interest in Minza Oil & Gas Ltd. Income or capital gains are not subject to taxation in the
BVI, or the Isle of Man. The profits in the Norwegian entity and the profit attributable to the UK are taxable.
(USD 000)
Current income tax charge
Adjustments in respect of current
income tax of previous years
Income tax expense reported in the income statement
(USD 000)
Current income tax charge
Adjustments in respect of current
income tax of previous years
Income tax expense reported in the income statement
Group
2009
197
(11)
186
Group
2008
0
0
0
Company
2009
Company
2008
0
0
0
0
0
0
Consolidated and Company Annual Report and Financial Statement 2009 32
Note 7: Income Tax (continued)
A reconciliation between the tax expense and the product of the accounting profit multiplied by the British Virgin Islands (BVI)
domestic tax rate for the year ended 31 December 2009 and 2008 is as follows:
(USD 000)
Accounting loss before income tax
Income tax at 0% (2008:0%)
Effect of higher UK and Norway tax rates
Effective income tax rate of 2% (2008: 0%)
(USD 000)
Accounting loss before income tax
Income tax at 0% (2008:0%)
Effective income tax rate of 0% (2008: 0%)
Note 8: New Build Contracts
(USD 000) – Group, New build contracts
B/F – Payments on account, Hull
Additions
Carried forward
B/F – Topside
Additions
Carried forward
B/F – Capitalised cost
Additions
Carried forward
B/F - Total
Additions
Carried forward
Group
2009
(10,271)
0
186
186
Company
2009
(1,457)
0
0
2009
458,730
0
458,730
22,968
16,371
39,339
12,277
6,045
18,322
493,975
22,416
516,391
Group
2008
(11,981)
0
0
0
Company
2008
(1,367)
0
0
2008
191,439
267,291
458,730
0
22,968
22,968
1,890
10,387
12,277
193,329
300,646
493,975
The value reported in the balance sheet mainly refers to contractual payments made to the yard, Samsung Heavy Industries
Co. Ltd. in Korea. The first vessel under construction would according to the contract be delivered starting from 2013. Total
obligations for the Group with respect to payment for the vessels are detailed in note 16.3. Samsung carries the title to and
the risk for the vessels hull until delivery, and has placed irrevocable refund guarantee for the prepayments made by the Group.
The title for Topside equipment passes gradually during construction and on payment. The carrying value of the contractual
payments and the capitalised costs are dependent on the continued contract position with Samsung; the ability to secure a
contract at economically viable terms; and securing financing. Should these cease the carrying value would require material
impairment. Capitalised interest of $143k is included in 2009 capitalised costs (2008 - $nil).
In assessing the carrying value of the asset the Group has reviewed the value in use. This has been calculated on a fully
commissioned cost, over periods varying from 15-20 years (expected lives of the project or asset), expected production capacity
/ availability, and realistic LNG sales prices. The resultant internal rates of return are believed to be commercially viable. Given the
asset value and project length changes in these assumptions can have a significant impact on the calculated carrying value.
Consolidated and Company Annual Report and Financial Statement 2009 33
Note 9: Equipment
(USD 000) - Group
Cost
Cost 1 January 2009
Acquisition
Additions
Disposals
31 December 2009
Depreciation
Cost 1 January 2009
Acquisition
Depreciation charge for the year
Exchange movement
Disposals
31 December 2009
Net book value
At 31 December 2009
At 31 December 2008
Note 10: Other current assets
(USD 000)
Debtors
Prepayments
Other receivables
Total other current assets
Note 11: Cash and cash equivalents
(USD 000)
Cash at the bank and in hand
Cash and cash
equivalents in the
balance sheet
Overdraft facility
Equipment
0
703
108
(56)
755
Equipment
0
138
250
(2)
(16)
370
Equipment
385
0
Group
2009
Group
2008
Company
2009
Company
2008
408
248
269
925
981
65
279
1,325
147
0
0
147
981
65
279
1,325
Group
2009
25,679
25,679
Group
2008
49,499
49,499
Company
2009
Company
2008
24,645
24,645
49,499
49,499
0
0
0
0
Cash and cash equivalents in the cash flow statement
25,679
49,499
24,645
49,499
Consolidated and Company Annual Report and Financial Statement 2009 34
Note 12: Share capital, shareholder information and dividend
Group & Company
Ordinary shares, nominal amount USD 0.01
Total number of shares
2009
112,746,190
112,746,190
2008
102,364,371
102,364,371
At 31 December 2009 2,493 issued shares had yet to be registered on the Norwegian VPS Register.
Group & Company
Ordinary shares
Issued and fully paid:
At 1 Jan 08
Warrants exercised
Issued June 2008
Issue in lieu of remuneration
31 Dec 08
Group & Company
Ordinary shares
Issued and fully paid:
At 1 Jan 09
Issued October 2009
31 Dec 09
Shares
(’000)
Share Capital
Share Premium
(USD’000)
(USD’000)
72,577
200
29,581
6
102,364
Shares
(’000)
102,364
10,382
112,746
726
2
296
0
1,024
207,339
0
336,002
76
543,417
Share Capital
Share Premium
(USD’000)
(USD’000)
1,024
103
1,127
543,417
8,826
552,243
Nominal value per share is USD 0.01. All issued shares have equal voting rights and are equally entitled to dividend. During the year
$10m before costs was raised via the issue of new shares and in addition shares were allotted to directors of FLEX LNG to cover
50% of their remuneration for the first and second half of 2009. These Directors’ shares had not been issued at 31/12/09 and are
recorded in other reserves $190k. Computation of earnings per share and diluted earnings per share is shown in note 5.
Other reserves: FLEX LNG has recognised under other equity $1,879k (2008: $4,262k) in relation to the cost of warrants,
options and shares issued.
Consolidated and Company Annual Report and Financial Statement 2009 35
Liquefaction Process
(cid:766) Optimized dual nitrogen expander cycle
(cid:766) Proven track record onshore and on LNG carriers with reliquefaction
(cid:766) Designed for a large range of feed gas compositions, from rich to lean
(cid:766) Operational simplicity, quick start up and shut down, low equipment count and easier
control
(cid:766) Improved safety by avoiding the use of hydrocarbon refrigerants
(cid:766) Single phase N2 refrigerant, not sensitive to vessel motions
(cid:766) High production availability achievable with low complexity
(cid:766) Overall efficiency equivalent to on-shore LNG plants achieved through process
optimisations and high efficiency equipment for power generation and compression in
combination with waste heat recovery
(cid:766) Minimum space, weight and equipment required for the generic liquefaction, providing
for maximum space and weight reserve for field specific equipment
Generic Topside
Fieldspecific
Topside
Unique Field Specific Adaptability
Note 12: Share capital, shareholder information and dividend (continued)
Main group shareholders at 31.12.09 are:
Shareholder:
KAWASAKI KISEN KAISHA LTD
JP MORGAN CLEARING CORP.1
CREDIT SUISSE SECURITIES (USA) LLC1
B SCHULTE INVESTMENT HOLDING
BANK OF NEW YORK MELLON SA/NV
JP MORGAN CHASE BANK1
JP MORGAN CLEARING CORP.1
2 x LM6000 & N2 Cycle compression
Utility & BOG compression
GOLDMAN SACHS & CO - EQUITY1
Liquefaction
Pre-treatment removal of:
CO2 ; H2O; Hg
© Flex LNG Management Ltd 2009. All rights reserved.
CAPITA TRUSTEE LIMITED RE 2302
Field specific:
Bulk CO2 Removal & reinjection;
MEG; Nitrogen rejection
Field specific:
Inlet separation, Condensate stabilization,
LPG handling
UBS SECURITIES LLC1
BANK OF NEW YORK MELLON SA/NV1
BOASSON
MORGAN STANLEY & CO INC. NEW YORK1
DEUTSCHE BANK AG LONDON
GOLDMAN SACHS INT. EQUITY1
J.P. MORGAN BANK LUXEMBOURG S.A1
WIECO AS
VARMA MUTUAL PENSION INSURANCE
MORGAN STANLEY & CO INTERNAT. PLC1
BGL BNP PARIBAS1
OTHER
Total2
(cid:766) Upstream of the generic topside the feed gas is treated in the field specific modules
to separate bulk amounts of condensate and water. Other process systems as required
is also located in the field specific modules, such as MEG reclamation, N2 rejection and
bulk CO2 removal and reinjection
(cid:766) The generic topside receives feed gas with the equivalent of pipeline specification
(<1.5% CO2) and removes CO2, water and mercury to LNG quality before liquefaction
Number of shares:
takes place
Ownership interest:
(cid:766) A large area reserved and prepared for field specific modules and the field specific
module will be tailored to the project requirements
16,915,330
Examples of combinations of field specific topside systems
14,049,010
12,996,167
Medium rich feed gas with high CGR
(cid:766) Inlet separation
(cid:766) Produced water treating
(cid:766) Condensate production
(cid:766) Chemical injection
(cid:766) Pre-compression for late field life
5,626,933
4,152,683
LPG rich feed gas & flow assurance
(cid:766) Inlet separation
(cid:766) Produced water treating
(cid:766) Condensate production
(cid:766) LPG production
(cid:766) MEG reclamation and injection
Nitrogen rich feed gas
(cid:766) Inlet separation
(cid:766) Produced water treating
(cid:766) Condensate production
(cid:766) Chemical injection
(cid:766) Nitrogen rejection
3,825,548
3,451,133
3,384,040
CO2 rich feed gas
(cid:766) Inlet separation
(cid:766) Produced water treating
(cid:766) Condensate production
(cid:766) Chemical injection
(cid:766) Bulk CO2 removal and reinjection
3,028,200
2,989,608
2,931,086
2,322,846
2,233,590
2,000,000
1,994,763
1,975,093
1,967,177
1,766,800
1,579,871
1,579,323
21,974,496
112,743,697
15.0%
12.5%
11.5%
5.0%
3.7%
3.4%
3.0%
3.0%
2.7%
2.6%
2.6%
2.1%
2.0%
1.8%
1.8%
1.7%
1.7%
1.6%
1.4%
1.4%
19.5%
100.0%
Note1 - Nominee account.
Note2 - The difference between the number of shares per VPS register and the number of outstanding shares is due to 2,493
issued shares not yet being registered in the VPS.
Note 13: Share based payments
Share-Based Payment - Group & Company
During the period ended 31 December 2009, FLEX LNG had share-based payment arrangements which are described below.
Plan
Type of arrangement
Date of Grants
Warrant Plan
Equity Based
27.03.2007 and 07.09.2007
Option Plan
Equity Based
22.07.2008, 27.10.2008,
11.12.2008 and 01.01.2009
Warrants and options granted
(less lapses) as of 31.12.2009
6,631,455
3,335,000
Remaining contractual life
Average 5.5 years
Average 5 years
Vesting conditions
25% vest on at shore completion of
the first vessel from Samsung, 25%
vest on at shore completion of the
second vessel from Samsung and
50% vest 31.12.2014
50% vest on the date of the
first LNG vessel’s first commercial
cargo of LNG, 50% vest on the
date of the second LNG vessel’s
first commercial cargo of LNG.
Expiry date
30/06/2015
31/12/2014
Consolidated and Company Annual Report and Financial Statement 2009 36
Note 13: Share based payments (continued)
As the exercise price of the warrants are quoted in USD, whereas the underlying is quoted in NOK, standardised models such as
the Black-Scholes Model cannot be used. The fair value of granted warrants is calculated using a Quanto-Barrier Option Pricing
Model. The fair value of the options is calculated using the Black-Scholes-Merton option pricing model.
The inputs to the model for options granted in 2009 are listed below:
Plan
No of options
Expected life
Weighted average share price at grant date (NOK)
Weighted average exercise price (NOK)
Annual NOK risk-free rate
Volatility of underlying share
Expected dividends
Fair Value of warrants
Option
60,000
5.08 years
18.50
21.50
3.27%
60.41%
-
NOK 9.39
The warrants contain market conditions in that the underlying has to trade above a barrier (hurdle) following vesting date in
order to be exercised.
Expected volatility is based on historical volatilities of similar entities listed on the Oslo Stock Exchange. FLEX LNG is newly listed
on Oslo Axess, and guidelines in IFRS 2, B26 are used to estimate expected volatility, as similar entities, Sevan Marine, Prosafe
and Aker Floating Production have been used.
The correlation between the rate of return of the underlying and that of the FX-rate is based on Prosafe historical quotes.
The total expensed amount in 2009 relating from the share-based payment plan was $1,689k (2008 - $4,156k). The split of
the 2009 expense between the warrants and options was $900k and $789k. The total expensed amount relating to remaining
options and warrants at 31/12/2009 was $7,023k (2008 - $5,334k).
Further details of the plan are as follows:
01.01.09 - 31.12.09
01.01.08 - 31.12.08
Options &
Warrants
Weighted
Average
Exercise Price
Warrants
Weighted
Average
Exercise Price
10,511,455
NOK 24.70
6,631,455
NOK 17.50
Warrants / options outstanding at the
beginning of year
Options granted
60,000
NOK 21.50
3,880,000
NOK 37.00
Exercised
Terminated
Forfeited
Expired
Options & warrants outstanding at the
end of year
Vested Option / Warrants
Weighted average fair value of
options granted during the year
0
0
(605,000)
NOK 37.00
0
0
0
0
0
0
0
0
0
0
0
0
9,966,455
NOK 21.90
10,511,455
NOK 24.70
0
0
0
0
60,000
NOK 9.39
3,880,000
NOK 19.89
Consolidated and Company Annual Report and Financial Statement 2009 37
Note 13: Share based payments (continued)
Outstanding and vested Warrants as of 31 December 2009 are given in the table below.
Exercise price
(NOK)
0.00 – 15.00
15.00 – 20.00
20.00 – 30.00
30.00 – 40.00
40 and above
Total
Outstanding
Options &
Warrants per
31.12.2009
6,631,455
0
60,000
3,275,000
0
9,966,455
Warrant holders are as follows;
Holder
Hansa LNG Limited
Hansa LNG Limited
Total
Outstanding
Weighted
average
remaining
contractual Life
Vested
Weighted
Average Exercise
Price NOK
Vested Options
& Warrants
31.12.2009
Weighted
Average
Exercise Price
5.50
0
5.00
5.00
0
5.33
14.44
0
21.50
37.00
0
21.90
0
0
0
0
0
0
Date
27th March 2007
7th September 2007
0
0
0
0
0
0
Warrants
2,000,000
4,631,455
6,631,455
In 2008 FLEX LNG authorised the issue of up to 2,600,000 options to the employee’s of the management companies. At
31/12/2009 1,335,000 of the 2,600,000 options remained in issue.
Options were granted as follows;
Holder
Employees of the management companies
Employees of the management companies
Hansa LNG Limited
Total - 2008
Lapsed - 2009, employees
Date
22nd July 2008
27th October 2008
11th December 2008
Employee of the management companies
1st January 2009
Total - 2009
Options
1,400,000
480,000
2,000,000
3,880,000
(605,000)
60,000
3,335,000
The employee options, subject to certain customary exceptions, require staff to be employed by the company from the date
of grant to the time of vesting. The objective of the options is to align the effort of employees with the future success of the
Group.
The options and warrants held by Hansa LNG Limited do not have an employment requirement. The awards to Hansa LNG
Limited were to compensation Hansa LNG Limited for, inter alia, its efforts in; establishing the Company; developing the
Company’s business concept and certain commercial opportunities; funding the Company until the first private placement;
achieving successful completions of the two private placements in 2007; and for reducing Hansa LNG Limited’s ownership share
in the Company through the two private placements in 2007.
During the period ended 31 December 2009 FLEX LNG agreed to issue the directors with shares covering 50% of their
remuneration. The value of the shares is based on the fair value of the services received of $190k (2008 - $182k). At 31
December 2009 164,722 shares with a value of $190k had not yet been issued to the directors.
Consolidated and Company Annual Report and Financial Statement 2009 38
Note 13: Share based payments (continued)
The split of shares issued to director, by way of remuneration, was as follows;
Director
J MacHardy
J van Hoften
I Beveridge
P Fjeld
S Pearl
A Westin
A Hiromichi
W Smith (resigned 2008)
Total
2009
34,678
21,674
21,674
21,674
21,674
21,674
21,674
0
164,722
2008
0
997
997
997
997
499
0
1,595
6,082
At 31/12/09 the 164,722 shares has not been issued.
Note 14: Other financial liabilities
On 11 June 2009 the Group entered into an agreement with Samsung covering the revised payment profile during the slow
down phase. Under the agreement, in addition to the agreed instalments, the Group had the opportunity to defer up to $4m
of EPCIC expenditure in the period from 1 May 2009 to 31 August 2009. The amount deferred will be repayable with the
first milestone billing after the slow down phase and bears interest at 7% per annum. At 31 December 2009 $3,733k had
been deferred, including interest. In addition certain vendor obligations on the EPCIC contract are covered by Samsung. These
amounts become payable by the Group not earlier than seven months after the resumption date. At 31 December 2009 it is
estimated that $2,474k in vendor obligations have been incurred by Samsung on behalf of the Group and a provision has been
made for this cost. In addition a $208k provision for the property lease liabilities is included, based on a fair value allocation on
the FLEX LNG Management Limited acquisition.
Note 15: Related parties
15.1 Purchase of FLEX LNG Management Limited
Pursuant to a share purchase agreement dated 1 January 2009 entered into between the Company and Hansa LNG Limited, a
company controlled by the founders, 100% of the shares in FLEX LNG Management Limited were transferred to the Company
against the nominal value of share capital of FLEX LNG Management Limited (£2).
15.2 Samsung principle agreement
As a result of the transfer of parts of the instalments paid under the shipbuilding contract for M-FLEX 4 to M-FLEX 1 the
balances under the intercompany loan agreements between the Company and M-FLEX 1 Limited and M-FLEX 4 Limited,
respectively, have been adjusted to reflect such transfers.
15.3 Oslo listing
The Company in respect of the listing on Oslo Axess entered into a guarantee agreement to backstop the IPO equity offering
of $10m and paid commission to the following shareholders; Bernhard Schulte Investment Holding GmbH ($51,237), HBK
Investments L.L.P. ($26,796), Kawasaki Kisen Kaisha Ltd. ($68,788), Seneca Capital LP ($17,826) and Seneca Capital International
Master Fund LP ($50,082).
15.4 Options and warrants
Hansa LNG Limited, a company controlled by the founders, has been issued with options and warrants as detailed in note 13.
The 2009 P&L cost was warrants $900k, (2008- $3,085k) and options $333k, (2008 - $32k).
Consolidated and Company Annual Report and Financial Statement 2009 39
Note 15: Related parties (continued)
15.5 Shares held by members of the Board – 31/12/09
Director
James A. MacHardy
Philip E. Fjeld
Scott Pearl
James D.A. van Hoften
Ian Beveridge
Anders Westin
Aoki Hiromichi
Total
No. Shares
0
997
427,997
997
250,000
499
0
680,490
The amounts above exclude the shares detailed in note 13, which had not been issued at 31/12/09.
Note 16: Commitments and contingencies
16.1 Guarantees
On 8 August 2008 FLEX LNG Management Limited entered into a ten year lease agreement on a property lease in London,
which is denominated in GBP. The Company has guaranteed to cover the provisions of the lease should FLEX LNG Management
Limited fail to comply with the obligations under the lease. The future rental payments under the lease are $2.1m (2008:
$2.1m).
Under the EPCIC contract between M-FLEX 1 Limited and Samsung, the Company has provided a guarantee for the liquidated
damages should M-FLEX 1 Limited cancel the EPCIC contract or Samsung terminate due to M-FLEX 1 Limited’s default. This
liability equals 8% of remaining and unpaid sums under the EPCIC contract, approximately $58m at 31 December 2009 (2008:
$42m). Under the principle agreement with Samsung all liabilities with Samsung under the four ship building and EPCIC
contracts are joint and several between the four companies and FLEX LNG, until funding is obtained for one vessel, or a contract
with a third party for use, has been secured.
Note 17.1 provides additional details on the current discussions with Samsung Heavy Industries.
16.2 Operating lease commitments, lessee
Subsidiaries have entered into leases on commercial property. The leases have average remaining lives of 1.8, 2.8 and 8.6 years
and are denominated in GBP and NOK. The leases are non-cancellable, although the intermediate lease has a break point in
2010, two years from expiry. The two shorter leases have no rent review prior to expiry, the longer lease has an upward only
review due five years before expiry. The future rental payable under the leases as at 31 December 2009 is as follows;
(USD 000)
Within one year
After one year but not more than five years
More than five years
Total
Group
2009
488
1,298
899
2,685
Group
2008
0
0
0
0
16.3 Capital commitments - SHI
At 31 December 2009, the Group had commitments of $2,503m (Hulls - $1,776m vessels 1-4, Topside - $727m vessel 1) (2008:
$2,238m) relating to four shipbuilding contracts with Samsung Heavy Industries Co. Ltd and one EPCIC contract. The profile
over the following years is; 2010 $146m; 2011 $411m; 2012 $837m; 2013 $404m; and 2014 $705m. These amounts would
increase considerably with the conclusion of three additional EPCIC Topside contracts for vessels two to four.
16.4 Capital commitments – Minza Oil & Gas Ltd.
Should FLEX Petroleum Limited (“FPL”) decide to exercise the option to purchase Minza Oil & Gas Ltd (“Minza”) the following
additional payments are then due to be made: option payment to acquire the remaining shares; a success fee if gas reserves of
1.2 TCF are confirmed (this is adjusted up for additional reserves on a set formula and is adjusted down (or not payable)
Consolidated and Company Annual Report and Financial Statement 2009 40
Note 16: Commitments and contingencies (continued)
16.4 Capital commitments – Minza Oil & Gas Ltd. (continued)
depending on the level of inert gas); and a success fee if FID is reached (this is adjusted up or down depending on reserve levels
and the level of inert gas). Additional details are provided in note 2. If FID is not achieved, by predefined dates, the Seller has
the right to repurchase the shares in Minza at a sum equal to the amounts expended by FPL.
16.5 Contingencies - Peak Petroleum and Shell Nigeria
The memorandum of understanding and heads of agreement previously entered into between, inter alia, FLEX LNG and Peak
Petroleum Industries Nigeria Ltd. regarding the potential joint development of OML 122 offshore Nigeria, have expired and
FLEX LNG therefore currently does not have a contractual relationship with Peak Petroleum Industries Nigeria Ltd. regarding the
development of OML 122.
Peak Petroleum Industries Nigeria Limited (“Peak Petroleum”) has previously sued Shell Nigeria Upstream Ventures Ltd (“Shell
Nigeria”) in Nigeria in order for the Nigerian courts to confirm that Peak is the 100% interest holder to OML 122. Shell Nigeria
has filed a counter-claim in order for the Nigerian courts to confirm that Shell Nigeria has a 40% interest in OML 122.
In a court filing on 11 June 2009 Shell Nigeria filed to join FLEX LNG as a co-defendant together with Peak Petroleum to Shell
Nigeria’s counter-claim against Peak Petroleum. Shell Nigeria’s counter-claim seeks declaratory relief to the effect that Peak
Petroleum and FLEX LNG’s discussions concerning possible development of OML 122 are in breach of various agreements
between Shell Nigeria and Peak Petroleum and injunctive relief restraining Peak Petroleum and FLEX LNG from continuing to
develop OML 122. FLEX LNG intends to vigorously defend the claim and believes it has no merit against FLEX LNG. Currently
the case is adjourned to April 2010 and has not been heard.
Note 17 Subsequent events / events after balance sheet data
17.1 Discussions with Samsung Heavy Industries
Samsung has informed FLEX LNG in writing that they will work with the Group with the aim of amending the Principle
Agreement. In addition they have informed FLEX LNG that presently and dependent on commercial progress and cost impact
they have no intention of exercising their right of termination stipulated under the Principle Agreement and acknowledge the
need to defer the resumption date.
17.2 Floating Liquefaction Project
The Group has announced that it is in advanced talks with an Asian National Oil Company (NOC) to join a floating liquefaction
project that would monetise gas resources controlled by the NOC in Australia. The proposed project would be developed by a
JV where FLEX LNG would join together with one or more technical and commercial partners.
17.3 Options
In 2008 FLEX LNG authorised the issue of up to 2,600,000 options to the employee’s of the management companies. At 31
December 2009 1,335,000 of the 2,600,000 options remained in issue. In 2010 the Company has issued 814,500 additional
options to staff with exercise prices of 6.5NOK and 27NOK.
17.4 Shares
On 23 February 2010 the Company issued 164,722 additional shares to cover 50% of the Director’s remuneration for 2009.
Note 18: Financing
Instalments payable to Samsung would likely need to be financed by raising equity and project debt financing from the financial markets.
Based on the four vessels currently contracted the Group, in aggregate, is currently obligated to pay Samsung a total of $146m in 2010.
Note 19: Going Concern
The financial statements have been prepared based on the going concern assumption, which contemplates the realisation of
assets and liabilities as part of the normal business course.
The Company acknowledges the current challenging fund raising environment it faces and the impact that this has on the ability of
the Group to finance its funding requirement. Following the raising of $10m of additional capital as part of the listing on Oslo Axess
on 30 October 2009, the Company expects to have sufficient financial resources to enable it to continue trading and to meet its
payment obligations until the next hull payments are due to be made to Samsung in November 2010. Under the Principle Agreement
with Samsung the resumption notice needs to be given by 31 May 2010. Should the notice not be issued by this date Samsung has a
contractual right to cancel all the four shipbuilding contracts as well as the EPCIC contract for M-FLEX 1. Samsung has informed FLEX
LNG in writing that they will work with the Group with the aim of amending the Principle Agreement. In addition they have informed
Consolidated and Company Annual Report and Financial Statement 2009 41
Liquefaction Process
(cid:766) Optimized dual nitrogen expander cycle
(cid:766) Proven track record onshore and on LNG carriers with reliquefaction
(cid:766) Designed for a large range of feed gas compositions, from rich to lean
(cid:766) Operational simplicity, quick start up and shut down, low equipment count and easier
control
(cid:766) Improved safety by avoiding the use of hydrocarbon refrigerants
(cid:766) Single phase N2 refrigerant, not sensitive to vessel motions
(cid:766) High production availability achievable with low complexity
(cid:766) Overall efficiency equivalent to on-shore LNG plants achieved through process
optimisations and high efficiency equipment for power generation and compression in
combination with waste heat recovery
(cid:766) Minimum space, weight and equipment required for the generic liquefaction, providing
for maximum space and weight reserve for field specific equipment
Generic Topside
Fieldspecific
Topside
Unique Field Specific Adaptability
(cid:766) Upstream of the generic topside the feed gas is treated in the field specific modules
to separate bulk amounts of condensate and water. Other process systems as required
is also located in the field specific modules, such as MEG reclamation, N2 rejection and
Note 19: Going Concern (continued)
FLEX LNG that presently and dependent on commercial progress and cost impact they have no intention of exercising their right of
termination stipulated under the Principle Agreement and acknowledge the need to defer the resumption date. The Group aims in
2010 to (a) conclude a final investment decision (FID) for at least one of the LNG Producers (which the Company believes should
enable it to raise additional finance), or (b) raise additional working capital and rearrange its obligations to allow the Company more
time to achieve (a). These steps would allow the Group to finance its operations over the year.
bulk CO2 removal and reinjection
(cid:766) The generic topside receives feed gas with the equivalent of pipeline specification
(<1.5% CO2) and removes CO2, water and mercury to LNG quality before liquefaction
(cid:766) A large area reserved and prepared for field specific modules and the field specific
module will be tailored to the project requirements
Examples of combinations of field specific topside systems
takes place
The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of the
uncertainties linked to future funding requirements.
Medium rich feed gas with high CGR
(cid:766) Inlet separation
(cid:766) Produced water treating
(cid:766) Condensate production
(cid:766) Chemical injection
(cid:766) Pre-compression for late field life
LPG rich feed gas & flow assurance
(cid:766) Inlet separation
(cid:766) Produced water treating
(cid:766) Condensate production
(cid:766) LPG production
(cid:766) MEG reclamation and injection
Note 20: Financial risk management objectives and policies
2 x LM6000 & N2 Cycle compression
Utility & BOG compression
© Flex LNG Management Ltd 2009. All rights reserved.
The Group’s activities expose it to a variety of financial risks: market risk (including currency risk and interest rate risk), credit
risk and liquidity risk. The Group’s overall risk management programme considers the unpredictability of financial markets and
seeks to minimise potential adverse effects on the group’s financial performance.
Field specific:
Inlet separation, Condensate stabilization,
LPG handling
Field specific:
Bulk CO2 Removal & reinjection;
MEG; Nitrogen rejection
Pre-treatment removal of:
CO2 ; H2O; Hg
Liquefaction
Nitrogen rich feed gas
(cid:766) Inlet separation
(cid:766) Produced water treating
(cid:766) Condensate production
(cid:766) Chemical injection
(cid:766) Nitrogen rejection
CO2 rich feed gas
(cid:766) Inlet separation
(cid:766) Produced water treating
(cid:766) Condensate production
(cid:766) Chemical injection
(cid:766) Bulk CO2 removal and reinjection
Currency risk
The value of monetary assets and liabilities denominated in foreign currencies will fluctuate due to changes in foreign exchange rates.
The Group has historically raised funding in USD, with the share price denominated in NOK, but the proceeds being fixed into USD. The
main capital commitments of the Group are to Samsung. Under the ship building contracts (“SBC’s”) the lump-sum price has been fixed
in USD. Currently the EPCIC contract is on a reimbursable basis and the Group is exposed to the underlying currencies billings of the
vendors. These billings are presently relatively small. Once the resumption notice has been issued, the Group will work with Samsung to
fix a lump sum price for the EPCIC contract in USD. Under both the four SBC’s and one EPCIC contract the group will then only remain
exposed to currency risk on change requests and variations, where the underlying cost is not in USD. Additionally the Group incurs
overhead costs in GBP and NOK. These exposures are not currently hedged.
Interest rate risk
The Group currently only has interest bearing assets. Amounts are placed on deposit for periods to secure higher returns, while
balancing the need to access funds as required.
Liquidity risk
The Group monitors its risk to a shortage of funds using a recurring cash modelling forecast. This model considers the maturity
of payment profiles and projected cash flows required to fund the operations.
The Group’s objective is to maintain a balance between continuity of funding and flexibility through the raising on finance from
investors. The Group does not currently have any bank overdrafts and bank loans. Liquidity management services are provided
to the Group under the management agreement.
Upon a company in the Group concluding a contract for the processing of LNG or contract of employment of one of the vessels it would
look to raise project loan finance to cover the majority of the capital costs for the asset. Additional details provided in notes 18 and 19.
Credit risk
The Group takes on exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when
due. The main exposure to credit risk is on cash and advance payments to Samsung. Funds are currently placed with the Bank
of Ireland, where deposits are currently guaranteed by the Irish Government, additionally Samsung has provided irrevocable
refund guarantee for the prepayments made by the Group.
Consolidated and Company Annual Report and Financial Statement 2009 42