FLEX LNG Group
Consolidated and Company
Annual Report and Financial
Statement 2010
1 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
General Information, FLEX LNG Ltd
Directors
Keith Meyer (Chairman)
Kathleen Eisbrenner (Deputy Chair)
James A. MacHardy
Philip E. Fjeld
Scott Pearl
James D.A. van Hoften
Ian Beveridge
Anders Westin
Aoki Hiromichi
Company Secretary
Manx Secretarial Services 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
Auditors
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
Lloyds TSB Offshore Limited
PO Box 328, Victory House
Douglas, IM99 3JY
Isle of Man
HSBC
165 Fleet Street
London, EC4A 2DY
United Kingdom
Barclays Wealth Intermediaries
1st Floor, Queen Victoria House
Douglas, IM1 2LF
Isle of Man
2 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Chairman’s Statement
History and Background
The FLEX LNG Group (“Group”) was founded with the purpose of producing liquefied
natural gas (“LNG”) offshore by commercialising floating LNG production units. 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”) 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. These
agreements were amended by the signing of a principle agreement with Samsung in
2009 and the preliminary agreement in 2011.
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 an offshore LNG production vessel, which will
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 into a marine environment.
By developing what the Company expects could be one of the world’s first FLNG
production units, FLEX LNG is aiming to be an early mover in providing floating
liquefaction capacity to the world market.
Commercial Update
In April 2011 we were pleased to announce that preliminary agreements have been
executed with InterOil, Pacific LNG, Liquid Niugini Gas (LNGL) and Samsung for an FLNG
project that would liquefy natural gas from the onshore Elk and Antelope gas fields in the
Gulf Province in Papua New Guinea (PNG). Commencement of operations is targeted for
2014. The project specific FEED will start in May 2011, with the parties to work towards
reaching a final investment decision (FID) as to the project before the end of 2011. The
agreements are a result of a strong collaboration over the past 12 months between FLEX
LNG, Samsung, InterOil, Pacific LNG and Liquid Niugini Gas to work together to develop
what the Company believes will possibly become the first ever floating facility to produce
LNG.
FLEX LNG and Samsung will be responsible for the design, engineering, construction and
commissioning of the FLNG vessel. FLEX LNG will also be joint operator of the FLNG unit
together with LNGL, which is a joint venture between InterOil and Pacific LNG. The FLNG
vessel is expected to be moored alongside a jetty, which will be shared with LNGL’s land-
based LNG facilities, with a nominal production capacity of close to 2 million tons of LNG
per annum to process an estimated 2.25 trillion cubic feet of gas over a firm 25-year
period.
3 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Chairman’s Statement
Commercial Update (continued)
The preliminary agreements signed with InterOil, Pacific LNG, LNGL and Samsung were
all conditional upon obtaining certain FLEX LNG’s shareholder approvals. Those
shareholder approvals were received on 28 April 2011.
Market Update
LNG consumption is forecast to double between 2010 and 2015, with most of the
demand growth forecast to be Asia and Europe. This has in addition been further
impacted by the power supply disruptions in Japan. The indications are that the
LNG market is moving back towards a ‘sellers market’ given the expected increases in
LNG receiving capacity. Much of the new regasification capacity over the next few years
will be in Asia, with Thailand, Singapore, Indonesia, Malaysia, Pakistan, Bangladesh,
Vietnam and possibly Sri Lanka and the Philippines becoming LNG importers over the
next few years. The market will also potentially be impacted by North American LNG
exports. There are proposals to convert two existing US receiving terminals into
liquefaction plants. The Group sees these changes as an opportunity that we will be well
placed for, in particular given an early mover advantage on the PNG project.
The Path Ahead
2011 will be a year of transition for Flex LNG, as the company takes a momentous step
towards successfully materialising the vision of the Group to become a leader in owning
and operating floating LNG production units. Through our first mover advantage, and
unique relationship with Samsung, we were able to offer InterOil and PacificLNG a
competitive advantage in time-to-market and execution certainty in the monetisation of
their record-setting natural gas discovery.
As the organisation moves through the development process on the first floating LNG
production unit, we will be well placed to continue to capitalise on the competitive
advantage of time, cost, and deployment certainty. The LNG landscape is rapidly
changing as new buyers enter the market almost routinely, often aided with the
installation of floating regasification (receiving) terminals. The Flex LNG floating
production units now offers the supply side of the LNG industry an opportunity to make a
dramatic change and liberate hundreds of smaller gas reserve sources throughout the
world. Flex LNG will be a value added service provider, but will also seek exposure
across the LNG value chain in order to optimise the value created using the company's
LNG production units.
2011 will see the company very focused on executing under our agreements with InterOil
and Pacific LNG, leading to the targeted in-service of the first unit by 2014. This year
will also see the organisation confidently step into the role of industry leader, seeking
value-added partners and projects for additional units which will serve a seemingly
insatiable global appetite for clean burning natural gas. The company is well positioned
in a growing segment of a growth industry and will strive to utilise its competitive
advantage to deliver superior shareholder returns.
Keith Meyer
Chairman
4 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
BOARD OF DIRECTOR’S REPORT 2010
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 and Samsung, has the ability to deliver the first unit for
operation in 2014. The major activities in 2010 were related to further technical
development of the floating LNG production concept and working towards commercial
arrangements for the LNG Producers.
FLEX LNG believes it has one of the industry’s more advanced FLNG concepts, where
over 300,000 man hours have been invested in the development of the LNG Producer
through all phases. The global energy industry’s interest in floating liquefaction solutions
continued to grow through 2010. A number of FLNG projects have moved into pre-FEED
and FEED with communicated targets to reach FID within the coming years.
The Group continues to focus on securing employment for the LNG Producers, and is
discussing alternative commercial arrangements for 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 traditional charter arrangements. The Group is
currently pursuing a number of opportunities.
In April 2011 the Group was pleased to announce that it had signed preliminary
agreements with InterOil Corporation (IOC), Pacific LNG Operations (PACLNG) and
Samsung for a floating liquefaction (FLNG) Project in PNG with targeted start of
operations in 2014. The FLNG project will liquefy gas from the Elk and Antelope gas fields
in the Gulf Province in PNG. Project specific Front-End Engineering and Design (FEED) will
start in May 2011 and the parties will work towards reaching a FID before the end of
2011.
In December 2010 the Group announced that it was targeting to sign binding amended
terms to the commercial relationship between FLEX LNG and Samsung. In April 2011
Samsung agreed to restructure the commercial relationship between the two parties
whereby, upon achieving FID, the intention is to transfer a substantial share of all
previous instalments paid to Samsung under the existing four shipbuilding contracts to
the single FLNG unit that is destined for the PNG project. FLEX LNG would remain able to
order additional FLNG units at Samsung. Given this, the Group has completed a review of
the carrying amounts of the four LNG Producers. Based on a preliminary calculation the
Group has recognised an impairment write-down on the four units of $97.8m, additional
details in note 8. The final position will be agreed at FID and there are a number of
factors impacting the calculation of the payments to be transferred, which are outside the
control of the Group.
5 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
BOARD OF DIRECTOR’S REPORT 2010 (Continued)
Business update (continued)
In June 2009 FLEX Petroleum Limited, a wholly owned subsidiary of FLEX LNG, entered
into an option agreement setting out the terms to acquire control of Jersey-based Minza
Oil & Gas Limited (“Minza”), additional details in note 2. In Q2 2010 the seismic surveys
and interpretation were completed for the “Anita” and “Wombat” structures. On the
preliminary data, estimated GIIP figure for the Chuditch Main, Chuditch West and
Wombat structures are a combined total of more than 3 tcf. In 2010 an option period
extension was signed to the original option agreement allowing more time to agree terms
with a development partner. The option extension period expired in October 2010 and
the Company no longer has control over the asset via the purchase option. The loss of
control has been accounted for as a disposal and the results of Minza, from the disposal
point, are no longer included in the Group consolidated results. Minza continues to
investigate alternatives as to the best way to continue the commercialisation of the gas
reserves.
Funding and Going Concern
In April 2011 the Group signed agreements with Samsung, which has agreed to
restructure the commercial relationship between the two parties whereby, upon
achieving FID, the intention is for a substantial share of all previous instalments paid to
Samsung under the existing four shipbuilding contracts to be transferred to the single
FLNG unit that is destined for the PNG project. Accordingly under this agreement the
equity already paid in by FLEX LNG to Samsung would cover all instalment payments to
Samsung until delivery of the FLNG unit, when one final instalment would be due. The
Company does not anticipate requiring any additional working capital from its
shareholders in 2011 and no further payments will be due to Samsung in 2011 prior to
reaching FID as to the PNG project. Upon a positive FID it will be necessary to raise
additional funds to cover general working capital and project management costs up until
delivery of the first FLNG unit.
In case the currently envisaged FID for the first unit is negative, the Company will need
to agree an alternative arrangement with Samsung and raise additional working capital.
Considering the above the Board believes that the going concern assumption remains
appropriate for the Group.
Risks
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 commercial, operational and 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
6 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
BOARD OF DIRECTOR’S REPORT 2010 (Continued)
Risks (continued)
present there are commitments of $2,500m to Samsung, which the Company is looking
to restructure once FID has been taken on the IOC/PACLNG project. 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 for the first unit has not yet been fixed.
In the IOC/PACLNG agreements there are a number of commercial terms that will need
to be agreed over the FEED period to allow a positive FID to be taken and there can be
no assurance that these agreements will be reached or that they will be reached in a
manner that is favorable for the Company. In relation to the Preliminary Agreement with
Samsung the Company has yet to fix the level of instalments that will be available for
transfer to the unit assigned to the IOC/PACLNG contract; this is to be agreed prior to
FID. The agreement on the level of equity to transfer will depend on a number of factors
that are not directly under the control of the Group. The replacement of the 2009
principle agreement with Samsung is dependent on achieving FID by 15 December 2011.
Following FID there will be additional operational risks associated with the IOC/PACLNG
project in PNG. Should IOC/PACLNG elect to exercise their share option the Company will
have a shareholder who is also a commercial counterparty. The Company will look to
introduce new procedures to manage this, should the need arise. 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 could be amongst the world’s first LNG Producers. The costs capitalised in
the year on the four units were $12.6m (2009: $22.4m). The cash balances at 31
December were $9.9m (2009: $25.7m). In the twelve months in 2010 the operating cash
outflow was $7.6m (principally the operating loss, non cash and working capital
movements); investing activities outflow $12.7m (mainly capitalised asset costs); and
financing activities inflow $4.5m (proceeds from deferred payments to Samsung). The
retained loss for the year was $108.9m (2009: $10.5m), which has been transferred to
reserves. The loss for the year included an impairment write down of $98.7m.
During the year the FLEX LNG Ltd (the “Company”) has continued to hold the
investments in its subsidiaries and managed the strategic direction of the Group. The
investments and loans to subsidiaries in the year were $16.6m (2009: $28.0m). The
cash balances at 31 December were $9.1m (2009: $24.6m). In the twelve months in
2010 the operating cash inflow was $1.0m (principally the operating loss, non cash and
working capital movement); and investing activities outflow $16.6m (additional loans).
The retained loss for the year was $115.4m (2009: $1.5m), which has been transferred
to reserves. The loss for the year includes an impairment write down ($114.3m) on the
inter group loans to the vessel owner companies following the impairment of the vessel
assets values. The Directors do not recommend the payment of a dividend.
7 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
BOARD OF DIRECTOR’S REPORT 2010 (Continued)
The Board
There has been no change in the composition of the Board during the financial year. In
March 2011 two additional Directors were appointed, Keith Meyer and Kathleen
Eisbrenner. Subsequent to their appointment they were made Chairman and Deputy
Chair respectively.
Environmental Reporting
The company has an objective that all activities that are performed are to be carried out
so as to minimise negative impacts to people and the environment. Given the pre-
commercial nature of the operations there is currently minimal corporate impact on the
environment. In 2010 the Group was certified by Det Norske Veritas to the ISO
14001:2004 standard, and also established a baseline of key environmental aspects
which will be used to target reductions throughout 2011.
Working Environment and Personnel
At the end of 2010, FLEX LNG and its subsidiaries had in total 33 employees, 29 men and
4 women. All personnel are employed by FLEX LNG Management Limited, FLEX LNG
Management (Norway) AS and FLEX LNG Management (Singapore) Pte Ltd. There have
not been any serious injuries or accidents in the current or prior year. Total absence due
to sickness has been 0.4% (2009: 0.5%) during the accounting year. FLEX LNG’s Board
of Directors currently consists of 8 men and 1 woman. 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.
Corporate Governance
The Group is committed to good corporate governance; additional details may be found
in the corporate governance report.
Board of Directors of FLEX LNG Ltd
28 April 2011
Keith Meyer (Chairman)
Aoki Hiromichi
Scott Pearl
Ian Beveridge
Philip Fjeld
Anders Westin
James van Hoften
Kathleen Eisbrenner
James MacHardy
8 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Responsibility statement
We confirm, to the best of our knowledge that the financial statements for the period 1
January to 31 December 2010 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
28 April 2011
Keith Meyer (Chairman)
Aoki Hiromichi
Director
Scott Pearl
Director
Ian Beveridge
Director
Philip Fjeld
Director & CEO FLML
Anders Westin
Director
James van Hoften
Director
Kathleen Eisbrenner
Director (Deputy
Chair)
James MacHardy
Director
9 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
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 law and 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.
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,
customers, vendors and employees. Strong corporate governance principles help to ensure that the Groups’
standards are applied to all its operations, and the Board has furthermore implemented a Code of Conduct and
Ethics. Further information in this respect is available on www.flexlng.com.
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 sections, 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. The objectives detailed in the Memorandum and Articles of Associations are as
follows, ‘commercial activity relating to securing hydrocarbon feed stock for floating liquefaction projects,
constructing, owning and operating floating liquefaction vessels and/or LNG vessels and sales and marketing of
hydrocarbons and business in connection therewith, including investing in other companies.’
The Group operates principally through its subsidiaries. The vision of FLEX LNG is to become a leader in owning
and operating floating LNG production units. This is intended to be achieved through utilising the first mover
advantage obtained, a unique yard relationship developed with Samsung and an innovative approach, both on
the technical aspects and through its commercial approach. FLEX LNG seeks to avoid limiting itself to being a
service provider but is also actively seeking exposure across the LNG value chain in order to optimise the value
created using the company's LNG Producers (LNGP). The business principles are as follows;
•
•
•
•
•
Protection of human lives and the environment and servicing our customers are the top priorities. 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 2010 was USD 1,130,432.43, divided into 113,043,243
shares of USD 0.01 each. The directors believe this is currently satisfactory given the Group’s business and
objectives, but will be increased as the Company grows.
Dividend policy
As the Group has yet to produce stable cash flow, or to secure a definitive 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.
10 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Corporate Governance Report (continued)
3 ) Equity and dividends (continued)
In connection with 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. The Company, as part of the IOC/PACLNG preliminary agreements,
proposed to the shareholders that shares be issued in a future period after the next AGM. The Company
believes this is necessary given the structure of the agreements with IOC/PACLNG.
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. Where there is a need to waive the pre-
emption rights of existing shareholders this will be justified at the time of approval or where based on an
existing mandate justified in the stock exchange announcement in relation to the increase.
All transactions between the Group and its close associates as defined by the Group’s Code of Conduct, are at
arm’s length and market prices. The Memorandum and Articles of Associations require Board members to
disclose interests in transactions entered into with the Group. 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.
However, as a BVI company, and to protect existing Norwegian shareholders from adverse tax consequences in
Norwegian Controlled Foreign Corporations Regulations, the Group may, in accordance with the Articles of
Association, deny the transfer of shares which would lead to Norwegian ownership 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.
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 interest
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 2010 and 2009 resolved
that half of the remuneration for the directors for the two years shall be paid by the 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 2009
and 2010 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 and 2010) shall be unlocked one year
thereafter.
6 ) General meetings
The Annual General Meeting (“AGM”) is the forum for the Company’s shareholders to participate in major
decisions, and is held each year. The Company’s Articles of Associations require 14 days notice for Annual and
Extraordinary General Meetings, rather than 21 days. The notice for Annual and Extraordinary General Meetings
shall include 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 the Company shall make arrangements for shareholders voting by proxy to give voting
instructions on each matter to be considered at the meeting. The Board of directors and the Chair of the
meeting will ensure appropriate arrangements for the General Meeting to vote separately on each candidate
nominated for election to the Company’s corporate bodies.
11 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Corporate Governance Report (continued)
6 ) General meetings (continued)
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 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 the decisions from the general meetings will also be made available.
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 shareholder representation, and the policy to
communicate with shareholders is 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 Directors, nomination committee and auditor to be present at the General
Meetings.
7 ) Nomination Committee
The Company operates a Nominating Committee, which is responsible for identifying and recommending board
candidates to the AGM. The Committee’s obligations and responsibilities are established in the Company’s
Articles of Association and via procedures for the nomination committee, as approved by the AGM. Currently
George Linardarkis, and Aasulv Tveitereid comprise the members of the Nomination Committee, and all
members are independent of the Board and the executive management. All members are elected by the
shareholders for a period until the 2012 AGM and their remuneration was approved at the AGM.
8 ) Corporate assembly and Board of Directors: composition and independence
As a BVI registered company with 33 employees and contractors at 31 December 2010, the Company does not
have a corporate assembly.
The Company’s Board of Directors currently comprises nine directors, of whom eight are considered
independent of 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 is fully informed about the commercial activities of the management companies 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 sub-
committees, in which Mr. P. Fjeld is not a member. Of the nine members, three directors are also associated
with 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.
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 is due at the AGM in 2011. They may be removed by a majority vote
at any time. Currently the Board has elected a Chairman and Deputy Chair and the 2011 AGM will seek any
necessary approval for the remuneration of these positions. In addition the Board has discussed the possibility
of converting these roles into Co-Chair positions and expects to resolve this in time for the 2011 AGM.
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 25 May 2010, the directors also received 50% of their remuneration in
shares for 2010.
All Directors participated in the physical Board meetings in 2010.
The current Board members are listed below:
12 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Corporate Governance Report (continued)
8 ) Corporate assembly and Board of Directors: composition and independence
(continued)
Mr. Keith Meyer, Chairman
Mr. Meyer has served on the Board since 15 March 2011. Mr. Meyer is an accomplished energy executive with
over 30 years of experience in the global energy industry across the energy value chain. Notably, Mr. Meyer
was President of Cheniere LNG Inc. which successfully developed the largest U.S. LNG receiving terminal.
While in a leadership position at Cheniere, Mr. Meyer helped to grow the company from a handful of staff to an
organisation of more than 400 people. Activities at Cheniere also included the execution of over 100 NAESB
contracts and ISDA agreements, a Sarbanes-Oxley compliant Risk Management Policy, the chartering of two
new-build LNG carriers, the development of a patented proprietary electronic trading platform for LNG cargo
slots (www.lnggateway.com), and the development and articulation of an operating philosophy based on an
“equilateral triangle” balancing Safety, Reliability, and Efficiency. The company achieved significant shareholder
value appreciation. Mr. Meyer also has 23 years of experience in Fortune 500 companies engaged in energy
infrastructure, serving in executive positions in various areas of commercial operations and development for
units of American Natural Resources (ANR), The Coastal Corp, and CMS Energy. Mr. Meyer is an MBA graduate
of Rice University and has served as guest lecturer for Duke University, Louisiana State University, Rice
University, University of Houston, has been a course instructor at Rice University’s Jones School of Graduate
Management, and is a frequent public speaker on various energy topics.
Ms. Kathleen Eisbrenner, Deputy Chair
Ms. Eisbrenner's has served on the Board since 15 March 2011. Ms. Eisbrenner's distinguished career has
spanned more than 30 years in the global oil and gas industry. She is founder and CEO of NextDecade LLC, a
new company positioned to capture innovative opportunities in the global integrated natural gas industry.
Previously, Ms. Eisbrenner served as Executive Vice President responsible for Royal Dutch Shell's Global LNG
strategy. Ms. Eisbrenner was the CEO and Founder of Excelerate Energy, the innovative developer of the
world's first floating LNG regas facilities through the successful commercialisation of the Energy Bridge
technology. Ms. Eisbrenner is currently a Board member of Chesapeake Energy Corporation, one of the largest
oil and gas producers in North America.
Capt. James A. MacHardy, Board member
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 safety
and operational 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. van Hoften joined the Bechtel
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 acquisition 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 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.
13 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Corporate Governance Report (continued)
8 ) Corporate assembly and Board of Directors: composition and independence
(continued)
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 20 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.
Mr. Aoki Hiromichi, Board member
Mr. Aoki has served on the Board since July 2008. Mr. Aoki is an Managing 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 from a consultancy in Bergen, Norway, specialising in
onshore gas transportation and distribution. Prior to this he worked for the shipping company Höegh LNG in
Oslo, focusing on concept development and technical specifications in 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.
14 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Corporate Governance Report (continued)
8 ) Corporate assembly and Board of Directors: composition and independence
(continued)
Capt. Gary Baron, Chief Operating Officer
Capt. Baron, joined FLEX LNG Management Limited in October 2008 and became COO 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, LPG/LNG 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, but one of the four
physical meetings was cancelled due to the volcanic ash disruptions.
The main responsibilities of the Board cover the following main areas; strategic planning and 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 to agree on the dividend policy.
The Chairman of the Board of Directors carry 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
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, the deputy chairman will lead 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, and financial risk. In addition the following
risks inherent in the business plan are monitored: commodity prices, exchange rates, 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 and the annual audit process, 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 regular liquidity summaries and a quarterly report identifying material variations from the
approved budget. Explanations are obtained for material variances. The Audit Committee has the responsibility
to evaluate risk exposure and internal control 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.
15 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Corporate Governance Report (continued)
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, expertise, time commitment and the complexity of the Group’s
operations, and is disclosed in note 3 to the financial statements. Through the Company’s remuneration of
directors, part of which has historically been in stock, the 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
share options, however, this is intended for the Co-Chairman and Deputy Chair subject to approval by the
Annual General Meeting 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 personnel
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 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 special characteristics 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 the remuneration, (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. The guidelines will be communicated to the next AGM.
Further information on the 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; the information is mainly provided in English. Before the start of the year the
Company publishes a summary of the key reporting and meeting dates for the following year.
The Board of Directors has adopted guidelines for the Company’s reporting of financial and other 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 internal treatment of
important information and insider trading instructions and for the Company group’s contact with shareholders
other than through General Meetings.
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.
16 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Corporate Governance Report (continued)
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 the
Company’s internal control procedures, including identified 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.
The Board of Directors have established guidelines in respect 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.
17 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Income Statement - FLEX LNG Group & Company
Year ended 31 December
(USD, 000)
Note
Group
2010
Group
2009
Company Company
2009
2010
Operating revenues
Other income
Gross revenues
0
0
0
0
0
0
0
0
0
0
0
0
Administrative expenses
Other operating costs
3,6
2,8
10,214
98,689
10,664
1,370
1,844
0
114,269
0
Operating loss
(108,903)
(10,664) (115,639)
(1,844)
Finance income
Loss before tax
Income tax expense
Loss after tax
Loss for the year
Attributable to:
4
7
222
393
214
387
(108,681)
(10,271) (115,425)
(1,457)
173
186
0
0
(108,854)
(10,457) (115,425)
(1,457)
(108,854)
(10,457) (115,425)
(1,457)
Equity holders of the parent
Non-controlling interests
(108,659)
(195)
(10,165) (115,425)
0
(292)
(1,457)
0
(108,854)
(10,457) (115,425)
(1,457)
Earnings per share
(USD):
- Basic
- Diluted
Group
2010
Group
2009
Company Company
2009
2010
5
5
(0.96)
(0.10)
(1.02)
(0.01)
(0.96)
(0.10)
(1.02)
(0.01)
18 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Statement of Comprehensive Income - FLEX LNG Group &
Company
Year ended 31 December
(USD, 000)
Note
Group
2010
Group
2009
Company Company
2009
2010
Loss for the year
(108,854)
(10,457)
(115,425)
(1,457)
Exchange differences on
translation
Other comprehensive (loss)
Total comprehensive loss for
the period
Attributable to equity holders of
the parent
Non-controlling interests
(9)
(291)
(9)
(291)
0
0
0
0
(108,863)
(10,748)
(115,425)
(1,457)
(108,668)
(10,456)
(115,425)
(1,457)
(195)
(292)
0
0
(108,863)
(10,748)
(115,425)
(1,457)
19 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Statement of Financial Position – FLEX LNG Group & Company
As at 31 December
Group
Company
Company
Group
(USD, 000)
Note
2010
2009
2010
2009
ASSETS
Non-current assets
New building contracts
Plant and equipment
Investment – unquoted
Intangible assets
Loans and investments
8
9
2
2
2
431,232
267
875
0
0
516,391
385
0
36,251
0
0
0
0
0
0
0
0
0
434,937
532,617
Total non-current assets
432,374
553,027
434,937
532,617
Current assets
Other current assets
Cash and cash equivalents
10
11
Total current assets
TOTAL ASSETS
EQUITY AND LIABILITIES
Equity
2,368
9,889
12,257
925
25,679
26,604
158
9,065
9,223
147
24,645
24,792
444,631
579,631
444,160
557,409
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
TOTAL EQUITY AND
LIABILITIES
12
12
1,130
552,490
1,127
552,243
1,130
552,490
1,127
552,243
(123,125)
(16,729) (110,269)
2,884
430,495
536,641
443,351
556,254
2
0
33,147
0
0
430,495
569,788
443,351
556,254
14
10,937
6,415
10,937
6,415
567
2,632
3,199
14,136
443
2,985
3,428
9,843
0
0
445
364
809
809
0
0
54
1,101
1,155
1,155
444,631
579,631
444,160
557,409
Board of Directors of FLEX LNG Ltd 28 April 2011
Keith Meyer (Chairman)
Aoki Hiromichi
Scott Pearl
Ian Beveridge
Philip Fjeld
Anders Westin
James van Hoften
Kathleen Eisbrenner
James MacHardy
20 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Consolidated Statement of Changes in Equity – FLEX LNG Group
(figures in USD,000)
For the year ended 31
December 2010
Share
capital
P&L reserve
To equity
holders
Share
premium
reserve
552,243
1,127
Exchange
translation
reserve
(291)
Option,
warrant and
shares
7,819
At 01.01.10
Loss for the period
Other comprehensive income
Total comprehensive income
Expenses related to share
issue
Exchange adjustments
Disposal of non controlling
interest
Cost of share-based payment
(options / warrants)
Shares issued
Cost of share-based payment
(shares)
At 31.12.10
For the year ended 31
December 2009
At 01.01.09
Loss for the period
Other comprehensive income
Total comprehensive income
On acquisition
Exchange adjustments
Issue of share capital
Expenses related to share
issue
Cost of share-based payment
(options / warrants)
Cost of share-based payment
(shares)
At 31.12.09
(24,257)
(108,659)
(108,659)
(35)
3
282
Non
controlling
interests
33,147
(195)
Total
equity
569,788
(108,854)
(9)
(195)
(108,863)
(140)
(35)
(140)
(32,812)
(32,812)
2,367
0
190
536,641
(108,659)
(9)
(108,668)
(35)
0
0
2,367
0
190
(9)
(9)
2,367
(285)
190
1,130
552,490
(132,916)
(300)
10,091
430,495
0
430,495
Share
capital
1,024
Share
premium
reserve
543,417
103
9,897
(1,071)
P&L reserve
Exchange
translation
reserve
Option,
warrant and
shares
To equity
holders
Non
controlling
interests
(14,092)
(10,165)
(10,165)
0
5,940
(291)
(291)
0
(292)
(292)
33,836
(397)
536,289
(10,165)
(291)
(10,456)
0
0
10,000
(1,071)
1,689
1,689
190
190
Total
equity
536,289
(10,457)
(291)
(10,748)
33,836
(397)
10,000
(1,071)
1,689
190
1,127
552,243
(24,257)
(291)
7,819
536,641
33,147
569,788
21 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Statement of Changes in Equity – FLEX LNG Ltd
(figures in USD,000)
For the year ended 31
December 2010
At 01.01.10
Loss for the period
Total comprehensive income
Expenses related to share
issue
Cost of share-based payment
(options / warrants)
Shares issued
Cost of share-based payment
(shares)
At 31.12.10
For the year ended 31
December 2009
At 01.01.09
Loss for the period
Total comprehensive income
Issue of share capital
Expenses related to share
issue
Cost of share-based payment
(options / warrants)
Cost of share-based payment
(shares)
At 31.12.09
Share
capital
1,127
Share
premium
reserve
552,243
P&L reserve
(4,935)
(115,425)
(115,425)
Exchange
translation
reserve
0
Option,
warrant and
shares
7,819
Non
controlling
interests
0
To equity
holders
556,254
(115,425)
(115,425)
(35)
(35)
3
282
2,367
2,367
(285)
190
0
190
Total
equity
556,254
(115,425)
(115,425)
(35)
2,367
0
190
1,130
552,490
(120,360)
0
10,091
443,351
0
443,351
Share
capital
1,024
Share
premium
reserve
543,417
P&L reserve
(3,478)
(1,457)
(1,457)
103
9,897
(1,071)
Exchange
translation
reserve
Option,
warrant and
shares
0
5,940
Non
controlling
interests
0
To equity
holders
546,903
(1,457)
(1,457)
10,000
(1,071)
1,689
1,689
190
190
Total
equity
546,903
(1,457)
(1,457)
10,000
(1,071)
1,689
190
1,127
552,243
(4,935)
0
7,819
556,254
0
556,254
22 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Consolidated Statement of Cash Flows - FLEX LNG Group
Year ended 31 December
(USD, 000)
Group
Note
2010
2009
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
Depreciation
Impairment charge
P&L on asset disposal
Working capital adjustments:
Increase in prepayments
Decrease in trade and other receivables
Decrease 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
Disposal / acquisition of subsidiary, net of cash
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
(108,681)
(10,271)
(222)
2,367
190
211
98,689
(19)
(393)
1,689
190
250
0
(21)
(133)
(183)
140
(78)
1,221
(7,657)
(7,536)
(324)
(15,175)
(52)
304
407
(7,556)
(14,820)
(98)
0
(110)
(957)
(12,592)
(22,416)
(24)
(423)
(12,714)
(23,906)
0
(35)
2
4,522
4,489
10,000
(1,071)
61
6,207
15,197
4
3.1
3.3
3.1
2,8
3
9
8
2
12
14
Net currency translation effect
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
11
(9)
(15,781)
(291)
(23,529)
25,679
9,889
49,499
25,679
23 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Statement of Cash Flows - FLEX LNG Ltd
Year ended 31 December
(USD, 000)
Company
Note
2010
2009
Cash flow from operating activities
Loss before tax
Adjustment to reconcile loss before tax to net cash flow
Non Cash:
Finance income
Impairment charge
Option and warrant costs
Share based payment expense
Working capital adjustments:
Increase / decrease in prepayments
Increase / decrease in trade and other receivables
Decrease in trade and other payables
Interest received
(115,425)
(1,457)
4
2
3.1
3.3
(214)
114,269
2,367
190
(94)
(3)
(346)
744
300
(387)
0
1,689
190
65
1,099
(7,355)
(6,156)
401
Net cash flow from operating activities
1,044
(5,755)
Cash flows from investing activities
Loans and investments in subsidiaries
2
(16,589)
(28,028)
Net cash flow used in investing activities
(16,589)
(28,028)
Cash flows from financing activities
Proceeds from issue of share capital
Costs of share issue
Net cash flow from financing activities
12
0
(35)
(35)
10,000
(1,071)
8,929
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period
(15,580)
24,645
(24,854)
49,499
Cash and cash equivalents at end of period
11
9,065
24,645
24 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 1: General information and significant accounting
policies
1.1 Basis for preparation
FLEX LNG Ltd is a limited liability company, incorporated in the British Virgin Islands. The
Group includes eight 100% owned active subsidiaries and as shown under note 2 below
and the Company’s interest in Minza Oil & Gas Ltd, up to the expiry of the Company’s
option in October 2010. The Group produces consolidated accounts incorporating these
companies and its activities are focused on developing production and storage of
liquefied natural gas. The company accounts for FLEX LNG Ltd relate to the parent
company only and in the following notes it is specified when the detail relates to the
consolidated group or the parent company only. Reported values are rounded to the
nearest thousand (USD 000) except when otherwise indicated.
The financial statements for the period ended 31 December 2010 have been prepared in
accordance with the International Financial Reporting Standards (IFRS) as adopted by EU
and valid as of 31.12.10. The financial statements were approved by the Board of
Directors on 28.04.11 for issue on 29.04.11. 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 and where certain assets which have been valued
on the basis of recoverable amount. The financial statements have also been prepared on
a going concern basis, additional information is included in notes 18 and 19.
The following standards were implemented in 2010;
IFRS 2 Share-based Payment (Revised) – An amendment to IFRS 2 that clarifies the
scope and the accounting for group cash-settled share-based payment transactions.
IFRS 3 (revised) Business Combinations – The revised Standard is expected to impact
the accounting
future acquisitions primarily regarding goodwill, contingent
consideration and transaction costs.
for
IFRS 39 Financial Instruments (Eligible Hedged Items) – Permits the designate of a
portion of the fair value changes or cash flow variability of a financial instrument as a
hedged item.
IFRIC 17 Distributions of Non-cash Assets to Owners - Provides guidance on accounting
for arrangements whereby an entity distributes non-cash assets to shareholders either as
a distribution of reserves or as dividends.
Improvements to IFRSs - IFRS 5 Non-current Assets Held for Sale and Discontinued
Operations; IFRS 8 Operating Segments; IAS 7 Statement of Cash Flows; IAS 36
Impairment of Assets; IFRS 2 Share-based Payment; IAS 1 Presentation of Financial
Statements; IAS 17 Leases; IAS 34 Interim Financial Reporting; IAS 38 Intangible
Assets; IAS 39 Financial Instruments: Recognition and Measurement; IFRIC 9
Reassessment of Embedded Derivatives; and IFRIC 16 Hedge of a Net Investment in a
Foreign Operation.
The adoption of these amendments has had no material impact on the financial position
or performance of the Group.
At the end of 2010, some new standards, changes in existing standards and
interpretations have been issued, but not yet become effective:
25 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 1: General information and significant accounting
policies (continued)
1.1 Basis for preparation (continued)
IAS 24 Related Party Disclosures (Amendment); IAS 32 Financial Instruments:
Presentation – Classification of Rights Issues (Amendment); IFRS 9 Financial
Instruments: Classification and Measurement; IFRIC 14 Prepayments of a minimum
funding requirement (Amendment); IFRIC 19 Extinguishing Financial Liabilities with
Equity Instruments; Amendments to IFRS 7 Financial Instruments – Disclosures;
Amendments to IAS 12 Income Taxes; and Annual improvements project 2010; IFRS 3
Business Combinations; IFRS 7 Financial Instruments – Disclosures; IAS 1 Presentation
of Financial Statements; IAS 27 Consolidated and Separate Financial Statements; IAS 34
Interim Financial Reporting; and IFRIC 13 Customer Loyalty Programmes.
The Group and Company intends to adopt those standards when they become effective.
Currently the Group and Company estimate that the implementation will have no impact,
or are unable to determine the impact.
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 period 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.
26 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 1: General information and significant accounting
policies (continued)
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. The assumptions behind the value in use calculation are
detailed in note 8.
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.
1.6 Segments
The Group is operating only one segment with respect to products and services. Segment
reporting is thus currently not relevant. Until a Group company obtains a final investment
decision all non-current assets are located in the country of domicile, the M-FLEX entities
are incorporated in the Isle of Man.
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.
27 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 1: General information and significant accounting
policies (continued)
1.7 Income tax (continued)
The Group consists of two legal entities incorporated in the British Virgin Islands, five
entities in the Isle of Man, one in Norway, one in Singapore and Minza Oil & Gas Ltd.
which is incorporated in Jersey, up until disposal in October 2010.
1.8 Non-current assets
Non-current assets are carried at cost less accumulated depreciation and impairment
adjustments. 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: 25 years
Periodic maintenance: variable to be determined once constructed
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 from 2014. 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.
28 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 1: General information and significant accounting
policies (continued)
1.8 Non-current assets (continued)
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.
1.9 Impairment of assets
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.
Other and non-current 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 sales 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. During the year an impairment review was completed on the vessel assets,
to determine their recoverable amount, additional details note 8.
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.
29 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 1: General information and significant accounting
policies (continued)
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.
Fair value of warrants granted for consulting services fees is measured at the fair value
of the services received.
30 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 1: General information and significant accounting
policies (continued)
1.12 Warrants and share based payments – equity settled transactions
(continued)
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
Country of
registration
Main
operations
Ownership
share
Voting
share
M-FLEX 1 Limited
M-FLEX 2 Limited
M-FLEX 3 Limited
M-FLEX 4 Limited
FLEX LNG Management
Limited
FLEX LNG Management
(Norway) AS
FLEX LNG Management
(Singapore) PTE LTD
FLEX Petroleum Limited
Minza Oil & Gas Ltd (until
disposal at 31/10/10)
Isle of Man
Isle of Man
Isle of Man
Isle of Man
Isle of Man
Norway
Singapore
British Virgin
Islands
Jersey
Shipping
Shipping
Shipping
Shipping
Management
services
Management
services
Management
services
Holding
company
Gas
Development
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
5%
5%
31 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 2: Subsidiaries (continued)
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
Impairment provision
2009
228,753
100,445
100,124
99,995
3,300
0
532,617
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 allocated share of the management recharge.
2010
246,373
99,689
99,621
99,818
3,705
(114,269)
434,937
Following the impairment write down on the vessel assets, note 8, the Company has
reviewed the carrying value of the loans to the four M-FLEX entities. The valuation has
been based on the recoverable amount for the vessel assets ($431.2m). The loan
amounts in excess of this have been recognised as an impairment loss in the Company
income statement ($114.3m). This adjustment has no impact at a consolidated level.
Disposal 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. The option period was extended in 2010 to 31
October, when it expired.
The investment was initially accounted for as an acquisition of assets. The individual
assets and liabilities acquired were 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 was recognised on the purchase and the majority share of the
purchase was recognised as a non-controlling interest. Given the option lapse, the
resulting change has been accounted for as a disposal of the individual assets and
liabilities recognised and a gain of $22k has been recognised on the disposal.
At 31 December the Group remains with a holding of 5% in the share capital of Minza.
The cost of this investment was $1,700k, which has been written down to $875k and a
impairment loss of $825k recognised, in addition capitalised costs of $113k have been
written off as an impairment loss giving a total impairment of $938k. The Group has
loaned Minza $1,532k. In the twelve months from option expiry, the loan can be
converted by the Group into 8.75% of the shares in Minza, or if not repaid by Minza
converted into 13.75% of the shares in Minza. The loan bears interest at LIBOR plus 1%.
The following amounts, in relation to Minza have been included in the consolidated
income statement.
32 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 2: Subsidiaries (continued)
Minza Oil and Gas Limited
(figures in USD,000)
Revenue – eliminated in FLEX consolidation
Net revenue
Costs
Loss before tax
Non-controlling interest
Assets and liabilities disposed
Plant and equipment
Intangible assets
Other current assets
Cash and cash equivalents
Current liabilities
Shareholder loans ($1,532k relates to FLEX)
Net assets
FLEX investment
Non controlling interest
Total net liabilities disposed
P&L on disposal
Proceeds
Net liabilities disposed
Profit on disposal
2010
2009
202
202
404
(202)
(195)
0
0
307
(307)
(292)
4
1,759
22
24
(38)
(2,353)
(582)
(1,700)
2,260
(22)
0
(22)
22
The breakdown of the intangible carrying amounts at 31 December was;
USD’000 – Group
Brought forward
On acquisition
Exploration and other costs incurred
Expected acquisition costs
Impairment
Disposal
Exchange adjustments
Total
2010
36,251
0
163
0
(113)
(36,069)
(232)
0
2009
0
752
957
34,542
0
0
0
36,251
The fair value of the purchase option $855k was included within the expected acquisition
costs.
33 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 3: Administrative expenses
3.1 Included in administration
expenses USD,000
Depreciation
P&L on disposal of assets
P&L on disposal of business
Net foreign exchange differences
Calculated fair value of warrants
Calculated fair value of options
Group
2010
211
3
(22)
(210)
1,536
831
Group
2009
250
(21)
0
420
900
789
Company
2010
0
0
0
(27)
1,536
831
Company
2009
0
0
0
(46)
900
789
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
2010
96
73
0
169
Group Company Company
2009
2010
62
2009
100
250
72
422
1
0
63
16
31
72
119
3.3 Remuneration
During 2010 FLEX LNG had seven Directors, but no employees. All employees are
engaged by the three management companies.
Staff costs USD,000
Group
2010
Group Company Company
2009
2010
2009
4,314
596
234
5,144
0
Wages and salaries
Social security costs
0
0
Pension costs
0
Total employee benefit expenses
Share based payments are covered in note 13. Employees are offered a fixed base
salary. 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 and
Singapore based staff are offered additional health insurance. The number of man-labour
years in 2010 was 33 (2009 – 41). In the year the Company has incurred social security
costs in relation to the payment of Directors fees in the Isle of Man.
4,736
574
207
5,517
0
42
0
42
Directors fees FLEX LNG, USD,000
Company
2010
Company
2009
80
James A. MacHardy
Philip E. Fjeld
50
50
Scott Pearl
50
James D.A. Van Hoften
50
Ian Beveridge
50
Anders Westin
50
Aoki Hiromichi
380
Total Directors’ fees (see note 13)
Mr. Meyer and Ms. Eisbrenner received no Directors fees or remuneration in 2010. 50%
of the remuneration listed above is paid via the issue of shares by the Company.
80
50
50
50
50
50
50
380
34 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 3: Administrative expenses (continued)
3.3 Remuneration (continued)
Where directors have taken on directorships of subsidiary companies, they have received
an annual fee of $2k per company on a pro rata basis. The cost per person for services
provided by Mr. Fjeld, Mr. Hoften, Mr. Beveridge and Mr. Hiromichi was $40k in the year
(2009: $37k). All earnings and shares for Mr. Beveridge are assigned to Bernhard
Schulte Investment Holding and for Mr. Aoki to Kawasaki Kisen Kaisha Ltd.
Executive
Management USD,000
Philip Fjeld
Jostein Ueland
Trym Tveitnes
Gary Baron
Salary
250
250
250
Sundry
benefits
56
35
2
250
1,000
3
96
Pension
12
13
12
13
Option
costs
31
30
31
15
107
Group
Total
349
328
295
281
10
995
50
50
1,253
2010
2009
1,185
The Executive Management receive remuneration via the management companies FLEX
LNG Management Limited, FLEX LNG Management Norway AS and FLEX LNG
Management (Singapore) Pte Ltd. 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
three month notice period. Additional
accommodation costs have been incurred in relation to the relocation of Mr. Fjeld and
Ueland to Singapore. 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 180,000
options, issued over the last three years.
that gives a
130
Note 4: Finance costs and revenue
Finance revenue
Interest income
Total financial revenue
Group
2010
222
222
Group Company Company
2009
2010
387
214
387
214
2009
393
393
Note 5: Earnings per share
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.
The following reflects the loss and share data used in the earnings per share calculation.
35 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 5: Earnings per share (continued)
Earnings per share:
2010
2009
Loss attributable to shareholders – Group $’000
Loss attributable to shareholders – Company $’000
Weighted average number of ordinary shares
Effect of dilution:
Share options 1
Warrants 2
Weighted average number of shares, adjusted for
dilution
1 the options are out of the money
2 the warrants are out of the money
Note 6: Management fees
(108,659)
(115,425)
(10,165)
(1,457)
112,947,425 104,213,188
0
0
112,947,425 104,213,188
0
0
There are no employees in FLEX LNG Ltd. A contract for management services is entered
with FLEX LNG Management Limited (“FLML”) and its subsidiaries. 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. The management agreement was amended in 2010 to include the new
Singapore management company. The total compensation for 2010 was $10,660k (2009:
$12,381k).
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, one entity in Singapore and the
Company’s interest in Minza Oil & Gas Ltd (until disposal in October 2010). Income or
capital gains are not subject to taxation in the BVI, or the Isle of Man. The profits in the
Norwegian and Singapore entities 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
2010
132
41
173
Group
2009
197
(11)
186
Company Company
2009
0
2010
0
0
0
0
0
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 2010 and 2009 is as follows:
36 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 7: Income tax (continued)
(USD,000)
Accounting loss before income tax
Income tax at 0% (2009:0%)
Effect of higher UK, Singapore and Norway tax rates
Effective income tax rate of 0.2% (2009: 1.8%)
(USD,000)
Accounting loss before income tax
Income tax at 0% (2009:0%)
Effective income tax rate of 0% (2009: 0%)
Note 8: New Build Contracts
(USD,000) – Group, New build contracts
At 1 January – Payments on account, Hull
Additions
Impairment
At 31 December
At 1 January – Topside
Additions
Impairment
At 31 December
At 1 January – Capitalised cost
Additions
Impairment
At 31 December
At 1 January – Total
Additions
Impairment
At 31 December
Group
2010
(108,681)
0
173
173
Group
2009
(10,271)
0
186
186
Company Company
2009
(1,457)
0
0
2010
(115,425)
0
0
2010
2009
458,730
458,730
0
(82,733)
0
0
375,997
458,730
39,339
8,183
(10,159)
22,968
16,371
0
37,363
39,339
18,322
4,409
(4,859)
12,277
6,045
0
17,872
18,322
516,391
12,592
493,975
22,416
(97,751)
0
431,232
516,391
Finance costs of $1,156k are included in 2010 capitalised costs (2009: $628k).
37 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 8: New Build Contracts (continued)
The value reported in the balance sheet mainly refers to contractual payments made to
the yard, Samsung in South Korea. The first vessel under construction would according
to the contract be delivered starting from 2014. 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 issued 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 IOC/PACLNG
contractual arrangements remaining at economically viable terms, finance being secured
at reasonable terms, and the restructuring of the contracts with Samsung at the
IOC/PACLNG project final investment decision (FID). In the case of a negative outcome
the carrying value could require additional material impairment. In the year the Company
has recognised impairment write downs of $97.8m on the four LNG Producers, based on
a preliminary estimate of the impact from the restructuring negotiation that have been
commenced, but which is intended to be concluded with Samsung at FID, for the
IOC/PACLNG project (additional details note 17.2). In the Q4 2010 report this calculation
was based on an estimate of the costs that would be incurred to allow the instalments to
be transferred from vessels 2-4 to vessel 1. In the 2010 statutory accounts the resulting
carrying value is additionally supported by a value in use calculation based on the
expected economic terms for the IOC/PACLNG contract.
In assessing the carrying value of the vessel assets the Group has reviewed the value in
use for vessel 1, after the instalment transfers from vessel 2-4. This has been calculated
on a fully commissioned cost, over a 25 year period (expected period of the project),
expected production capacity/availability (an estimated 2.25 trillion cubic feet of gas over
a 25-year period), revenue shares (14.5% of the revenue from the sale of LNG from the
FLNG vessel for an initial 15-year period, for the next 5 years 12.5% of the revenue and
10% of the revenue for the last 5-year period), agreed deductions and premiums for
shared costs with IOC/PACLNG, and expected LNG sales prices for the region. The
weighted cost of capital (WACC) for the Company, for this assessment only, is calculated
based on factors that impact the company’s ability to raise capital to finance its assets.
The estimated WACC, for this assessment only, takes into account the tax rate, cost of
debt, cost of equity, the beta for the company, interest rates and the debt to equity ratio,
a post tax WACC of 8.3% has been used in the calculation. This calculation is subject to a
number of assumptions as to the future, which may or may not prove to be accurate.
The resultant value in use supports the asset carrying value, after the impairment write
down of $97.8m. Given the asset value and project length, changes in these assumptions
(in particular; oil price, oil price slope, capex, and interest and equity returns) can have a
significant impact on the calculated carrying value. These forecasts are uncertain as they
require assumptions about future market conditions, production capabilities for a vessel
that has yet to be built, the funding mix of equity and debt, expected returns for debt
and equity providers, final capital cost and the ability to take a positive FID. Significant
and unanticipated changes in these assumptions could require an additional provision for
impairment in a future period. Given the nature of these evaluations the management
cannot reasonably quantify the impact of changes in these assumptions.
38 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 9: Equipment
(USD,000) - Group
Cost
Cost 1 January 2010
Additions
Disposal of subsidiary
Disposals
31 December 2010
Cost 1 January 2009
Acquisition
Additions
Disposals
31 December 2009
Depreciation
Cost 1 January 2010
Depreciation charge for the year
Exchange movement
Disposal of subsidiary
Disposals
31 December 2010
Cost 1 January 2009
Acquisition
Depreciation charge for the year
Exchange movement
Disposals
31 December 2009
Net book value
At 31 December 2010
At 31 December 2009
Equipment
755
103
(5)
(87)
766
0
703
108
(56)
755
Equipment
370
211
1
(1)
(82)
499
0
138
250
(2)
(16)
370
Equipment
267
385
39 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 10: Other current assets
Group
Group Company Company
(USD 000)
Debtors
Prepayments
Loans and receivables
Other receivables
Total other current assets
2010
2009
2010
179
381
1,532
276
2,368
408
248
0
269
925
64
94
0
0
2009
147
0
0
0
158
147
Note 11: Cash and cash equivalents
(USD 000)
Group
2010
Group Company Company
2009
2010
2009
Cash at the bank and in hand
9,889
25,679
9,065
24,645
Cash and cash equivalents in the
balance sheet and cash flow
statement
Overdraft facility
9,889
25,679
9,065
24,645
0
0
0
0
Note 12: Share capital, shareholder information and
dividend
Group & Company
Ordinary shares, nominal amount USD 0.01
Total number of shares
2010
2009
113,043,243 112,746,190
113,043,243 112,746,190
Group & Company
Ordinary shares
Issued and fully paid:
Shares
Share
Capital
(’000)
(USD’000)
Share
Premium
(USD’000)
At 1 January 2010
Expenses related to 2009 share issue
Issue in lieu of remuneration
31 December 2010
112,746
0
297
113,043
1,127
0
3
552,243
(35)
282
1,130
552,490
40 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 12: Share capital, shareholder information and
dividend (continued)
Group & Company
Ordinary shares - Issued and fully paid:
At 1 January 2009
Issued 2009
31 December 2009
Shares
Share
Capital
(’000)
(USD’000)
Share
Premium
(USD’000)
102,364
10,382
112,746
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 shares were allotted to directors of FLEX
LNG to cover 50% of their remuneration for the year. These Directors’ shares for the H2
remuneration had not been issued at 31/12/10 and are recorded in the option, warrant
and share reserves, $95k. Computation of earnings per share and diluted earnings per
share is shown in note 5.
Other reserves: FLEX LNG has recognised under other equity $2,272k (2009: $1,879k)
in relation to the cost of warrants, options and shares issued.
Main group shareholders at 31.12.10 are:
Shareholder:
KAWASAKI KISEN KAISHA LTD
STATE STREET BANK AND TRUST CO. 1
JP MORGAN CLEARING CORP. 1
JP MORGAN CHASE BANK1
B SCHULTE INVESTMENT HOLDING
BANK OF NEW YORK MELLON SA/NV
GOLDMAN SACHS & CO - EQUITY1
MORGAN STANLEY & CO INTERNAT. PLC1
BROWN BROTHERS HARRIMAN & CO
JP MORGAN CLEARING CORP. 1
BANK OF NEW YORK MELLON SA/NV1
SIX SIS AG 25PCT1
GOLDMAN SACHS INT. EQUITY1
BOASSON
BANK OF NEW YORK MELLON (LUX) S.A. 1
PATRONIA AS
KISTEFOS AS
CREDIT SUISSE SECURITIES1
KISTEFOS INVESTMENT AS
DEUTSCHE BANK AG LONDON1
Other
Total
Note1 - Nominee account.
Number of
shares:
16,957,416
13,486,167
13,225,510
Ownership
interest:
15.0%
11.9%
11.7%
6,168,638
5,666,019
4,309,507
3,722,098
3,140,962
3,068,690
3,010,033
2,931,086
2,870,897
2,579,216
2,322,846
1,975,093
1,967,177
1,500,000
1,375,000
1,310,000
1,250,000
5.5%
5.0%
3.8%
3.3%
2.8%
2.7%
2.7%
2.6%
2.5%
2.3%
2.1%
1.7%
1.7%
1.3%
1.2%
1.2%
1.1%
20,206,888
113,043,243
17.9%
100.0%
41 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 13: Share based payments
Share-Based Payment - Group & Company
During the period ended 31 December 2010, FLEX LNG had share-based payment
arrangements which are described below.
Warrant Plan
Equity Based
Plan
Type of arrangement
Option Plan
Equity Based
22.07.2008, 27.10.2008,
11.12.2008, 01.01.2009,
01.01.2010, 22.03.2010,
21.06.2010, 01.07.2010,
01.08.2010
Date of Grants
19.03.2007 and 07.09.2007
Warrants and options
granted (less lapses)
as of 31.12.2010
Remaining contractual
life
6,631,455
4,085,000
Average 6 years
Average 6 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, subject to
the first two criteria being met.
Expiry date
31/12/2016
2008/9 Allocations:
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.
2010 Allocations:
One third vest on the FID for
the first vessel, one third
vest at 30/06/2012, and one
third vest at the second LNG
vessel’s first commercial
cargo of LNG.
31/12/2016
The fair value of the options is calculated using the Black-Scholes-Merton option pricing
model. During the year the expiry dates for both schemes was extended to 31/12/2016,
in addition the expected exercise date was updated for the lengthening of the anticipated
vesting periods.
The inputs to the model for options granted in 2010 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
17.31
3.04%
78.57%
-
NOK 2.16
Option
909,000
3.55 years
5.87
42 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 13: Share based payments (continued)
The warrants contain market conditions in that the underlying has to trade above a
barrier (hurdle) following vesting date in order to be exercised.
From 2010 expected volatility has been based on historical volatilities for FLEX LNG
shares.
The total expensed amount in 2010 relating from the share-based payment plan was
$2,367k (2009: $1,689k). The split of the 2010 expense between the warrants and
options was $1,536k and $831k. The total expensed amount relating to remaining
options and warrants at 31/12/2010 was $9,390k (2009: $7,023k).
Further details of the plan are as follows:
01.01.10 - 31.12.10
01.01.09 - 31.12.09
Options &
Warrants
Weighted
Average
Exercise
Price
Weighted
Average
Exercise
Price
Warrants
9,966,455 NOK 21.90
10,511,455
NOK 24.70
909,000 NOK 17.31
0
0
(159,000) NOK 25.67
0
0
0
0
60,000
0
0
(605,000)
0
NOK 21.50
0
0
NOK 37.00
0
10,716,455 NOK 21.57
9,966,455
NOK 21.90
0
0
0
0
909,000
NOK 2.16
60,000
NOK 9.39
Warrants / options
outstanding at the
beginning of year
Options granted
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
Vested
Outstanding and vested Warrants as of 31 December 2010 are given in the table below.
Outstanding
Weighted
average
remaining
contractual
Life
6.01
6.01
6.01
6.01
6.01
6.01
Exercise price (NOK)
0.00 – 7.00
7.00 – 15.00
15.00 – 30.00
30.00 – 40.00
40 and above
Total
Outstanding
Options &
Warrants
per
31.12.2010
385,000
6,631,455
495,000
3,205,000
0
10,716,455
Vested
Options &
Warrants
31.12.2010
0
0
0
0
0
0
Weighted
Average
Exercise
Price NOK
6.50
14.64
26.33
37.00
0
21.57
Weighted
Average
Exercise
Price
0
0
0
0
0
0
43 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 13: Share based payments (continued)
Warrant holders are as follows;
Holder
Hansa LNG Limited
Hansa LNG Limited
Total
Date
27th March 2007
7th September 2007
Warrants
2,000,000
4,631,455
6,631,455
In 2008 FLEX LNG shareholders authorised the issue of up to 2,600,000 options to the
employee’s of the management companies. At 31/12/2010 2,085,000 of the 2,600,000
options remained in issue. In addition 2,000,000 options were granted to Hansa LNG
Limited in 2008.
Options were granted as follows;
Holder
Employees of the management companies
Employees of the management companies
Hansa LNG Limited
Lapsed - 2009, employees
Employee of the management companies
Total - 2009
Lapsed - 2010, employees
Employee of the management companies
Total - 2010
Date
22ndJuly 2008
27th October 2008
11th December 2008
1st January 2009
2010 grants
Options
1,400,000
480,000
2,000,000
(605,000)
60,000
3,335,000
(159,000)
909,000
4,085,000
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 compensate 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 2010 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 (2009 - $190k). At 31 December 2010 118,879
shares with a value of $95k had not yet been issued to the directors.
44 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 13: Share based payments (continued)
The split of shares issued to director, by way of remuneration, was as follows;
2009
Director
34,678
J MacHardy
21,674
J van Hoften
I Beveridge1
21,674
21,674
P Fjeld
21,674
S Pearl
21,674
A Westin
H Aoki1
21,674
164,722
Total
Note1: These shares are issued to the company they represent rather than the individual.
In addition at 31/12/10 118,879 of these shares has not been issued.
2010
52,886
33,054
33,054
33,054
33,054
33,054
33,054
251,210
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 2010 $3,929k (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, under the principle agreement with Samsung.
At 31 December 2010 it is estimated that $6,870k (2009: $2,474k) in vendor obligations
have been incurred by Samsung on behalf of the Group and a provision has been made
for this cost. Per the preliminary agreement with SHI, the intent is that on FID these
amounts and the timing of payment would be restructured. In addition a $138k (2009:
$208k) provision for the property lease liabilities is included, based on a fair value
allocation on the FLEX LNG Management Limited acquisition. It is believed that the
carrying values and fair values for the other financial liabilities are the same.
Note 15: Related parties
15.1 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 2010 P&L cost was warrants $1,536k, (2009-
$900k) and options $230k, (2009 - $333k).
15.2 Shares held by members of the Board
Board Member
James A. MacHardy
Philip E. Fjeld
Scott Pearl
James D.A. van Hoften
Ian Beveridge
Anders Westin
Hiromichi Aoki
Total
2010
2009
62,537
40,083
467,083
40,083
250,000
39,585
0
899,371
0
997
427,997
997
250,000
499
0
680,490
45 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 15: Related parties
15.2 Shares held by members of the Board (continued)
The amounts above exclude the shares detailed in note 13, which had not been issued at
the yearend.
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 $1.8m (2009: $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 $45m
at 31 December 2010 (2009: $58m). 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. In addition the
agreements excuse the continued delay in the instalments previously due under the
original ship building contracts.
Note 17.1-2 provides additional details on the current discussions with Samsung.
16.2 Operating lease commitments, lessee
Subsidiaries have entered into leases on commercial property. The leases have average
remaining lives of 0.8, 1.8 and 7.6 years and are denominated in GBP and NOK. The
leases are non-cancellable. 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 2010 is as follows;
(USD 000)
Within one year
After one year but not more than five years
More than five years
Total
Lease payments made during the year were $506k (2009: $446k).
Group
2010
438
1,039
619
2,096
Group
2009
488
1,298
899
2,685
16.3 Capital commitments - Samsung
At 31 December 2010, the Group had capital payment commitments of $2,500m (Hulls -
$1,776m vessels 1-4, Topside - $724m vessel 1) with Samsung. The payment profile,
based on a 30 June 2010 resumption date, the Samsung 2009 principle agreement and
expected design and commissioning would have been: 2010 $143m; 2011 $411m; 2012
$837m; 2013 $404m; and 2014 $705m. Under the 2011 Preliminary Agreement with
Samsung (additional details note 17.2), the parties have agreed that no payments,
including those payable in 2010, are due in the FEED phase and that the intent is to
restructure the contracts once FID is taken in relation to the IOC/PACLNG project and the
principle agreement will then become null and void. At 15 December 2011, if FID has not
occurred, the terms of the principle agreement will be reinstated (additional details in the
2009 accounts).
46 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 16: Commitments and contingencies (continued)
16.4 Capital commitments – Minza Oil & Gas Ltd.
Given the lapse of the option to purchase Minza Oil & Gas Ltd (“Minza”) there remains no
commitments in relation to the previous purchase payments.
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. In 2011
Shell Nigeria has withdrawn its application to join FLEX LNG in its counter claim.
Note 17: Subsequent events / after balance sheet date
17.1 Floating Liquefaction Project
On 11 April the Group signed preliminary agreements with IOC, PACLNG and Samsung
for an FLNG project that would liquefy gas from the Elk and Antelope gas fields in the
Gulf Province in PNG. Project specific Front-End Engineering and Design (FEED) will start
in May 2011. The FLNG vessel is expected to have a production capacity of close to 2
million tons of LNG per annum and to process an estimated 2.25 trillion cubic feet of gas
over a firm 25-year period. Per the preliminary agreements, FLEX LNG would receive,
less agreed deductions, 14.5% of the revenue from the sale of LNG for the initial 15-year
period. For the next 5 years FLEX LNG will receive 12.5% of the revenue and 10% of the
revenue for the last 5-year period.
17.2 Discussions with Samsung Heavy Industries
On 11 April the Group signed a Preliminary Agreement and FEED with Samsung. In order
to support the FLNG project with IOC and PACLNG, FLEX LNG and Samsung have agreed
to restructure the commercial relationship between the two parties; this was subject to
FLEX LNG shareholder approval of the proposed deal which has been provided. Upon
reaching a positive FID the intention is to transfer substantially all instalments paid (less
deductions to be agreed) to Samsung under the existing four shipbuilding contracts to
the FLNG unit that is destined for the PNG project. FLEX LNG would remain able to order
additional FLNG units at Samsung.
In relation to the project FLEX LNG and Samsung would be responsible for the design,
engineering, construction and commissioning of the FLNG vessel. FLEX LNG would also
be joint operator of the FLNG unit together with IOC and PACLNG. Construction of the
FLNG unit would be fully financed until delivery. The equity already paid in by FLEX LNG
47 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 17: Subsequent events / after balance sheet date
(continued)
17.2 Discussions with Samsung Heavy Industries (continued)
to Samsung would cover all payments to Samsung until delivery of the FLNG unit, when
one final instalment would be due. In addition the agreements sanction the continued
postponement of the instalments previously due under the original ship building
contracts.
17.3 Additional Option and Share Issuance
In relation to the IOC and PACLNG agreements the Company will issue options to acquire
11,315,080 common shares in FLEX LNG at an average strike price of 4.5909 NOK. The
options can be exercised no later than 15 days after approval has been received from
FLEX LNG’s shareholders, which has been provided on 28 April 2011.
In case of a positive FID, IOC and PACLNG have agreed to a) provide a conditional
financing package to ensure payment of the final Samsung instalment once construction
of the FLNG unit has been completed (“the back stop financing”) and (b) certain
additional credit enhancement facilities to facilitate obtaining project finance. As
compensation FLEX LNG has agreed to grant further equity to IOC and PACLNG. Upon the
project achieving a positive FID, IOC and PACLNG would receive shares at par value
equivalent to 5% of FLEX LNG. An additional amount of shares equalling up to 15%
ownership in FLEX LNG may be issued to IOC and PACLNG at par value in three 5%
tranches during the period from FID until 9 months after FID. The additional share
compensation is dependent on FLEX LNG utilising the IOC/PACLNG financial support and
reduces as provided in the agreements, if alternatives are obtained.
17.4 Shares
In February 2011 the Company issued 118,879 additional shares to cover 50% of the
Director’s remuneration for H2 2010.
Note 18: Financing
Samsung has agreed to restructure the commercial relationship between the two parties
whereby, upon achieving FID, the intention is for a substantial share of all previous
instalments paid (less deductions to be agreed) to Samsung under the existing four
shipbuilding contracts to be transferred to the single FLNG unit that is destined for the
PNG project. Construction of the FLNG unit would be fully financed until delivery. The
equity already paid in by FLEX LNG to Samsung would cover all instalment payments to
Samsung until delivery of the FLNG unit, when one final instalment would be due. The
Group’s funding requirement between FID and delivery of the FLNG vessel would be
limited to general working capital and project management cost in the period. It is the
view of the Company that it does not anticipate requiring any additional working capital
from its shareholders in 2011 prior to reaching FID.
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.
48 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 19: Going Concern (continued)
In April 2011 the Group signed agreements with Samsung, which has agreed to
restructure the commercial relationship between the two parties whereby, upon
achieving FID, the intention is for a substantial share of all previous instalments paid to
Samsung under the existing four shipbuilding contracts to be transferred to the single
FLNG unit that is destined for the PNG project. Accordingly under this agreement the
equity already paid in by FLEX LNG to Samsung would cover all instalment payments to
Samsung until delivery of the FLNG unit, when one final instalment would be due. The
Company does not anticipate requiring any additional working capital from its
shareholders in 2011 and no further payments will be due to Samsung in 2011 prior to
reaching FID as to the PNG project. Upon a positive FID it will be necessary to raise
additional funds to cover general working capital and project management costs up until
delivery of the first FLNG unit.
In case the currently envisaged FID for the first unit is negative, the Company will need
to agree an alternative arrangement with Samsung and raise additional working capital.
Considering the above the Board believes that the going concern assumption remains
appropriate for the Group.
Note 20: Financial risk management objectives and
policies
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.
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 with 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. Over the
FEED phase for the IOC project, the Group will work with Samsung to fix a lump sum
price for the contract in USD. Samsung has entered into a number of USD/WON and
USD/EUR hedges in relation to the contracts. Either upon restructuring the contracts at
FID, or before in the option of the Group, the hedges would need to be amended to
match the revised cash flow profiles; until this point there is an exchange exposure for
the Group. Under 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.
49 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 20: Financial risk management objectives and
policies (continued)
Currency risk (continued)
The Group’s shares are traded in NOK. The NOK trading price is impacted by the
underlying activities of the Group, which are primarily denominated in USD. Currency
fluctuations relative to the NOK of an investor’s currency of reference may also adversely
affect the value of an investor’s investments.
Interest rate risk
The Group currently has interest bearing assets. Amounts are placed on deposit for
periods to secure higher returns, while balancing the need to access funds as required.
The interest bearing liabilities are on a fixed interest rate.
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. Historically funds have been raised via equity issuance.
Market conditions can have a significant impact on the ability to raise equity finance,
while new equity financing may be dilutive to existing shareholders.
The Group’s objective is to maintain a balance between continuity of funding and
flexibility through the raising of 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. The additional funds that the Group will
raise in 2011 are linked to the shareholder approval of the IOC/PACLNG deal, which has
now been approved, and IOC/PACLNG exercising their option.
Upon a company in the Group concluding a contract for the processing of LNG or a
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. With respect to the PNG project, the
ability of the Group to obtain project finance will be linked to the reaching of and the
nature of commercial contractual terms with IOC/PACLNG, however in case of positive
FID the intent is for IOC/PACLNG to provide backstop financing, if necessary, for the final
instalment due to Samsung.
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. Currently the main exposure to credit risk is on
cash and advance payments to Samsung. Cash funds are currently placed with the Bank
of Ireland, Lloyds TSB and Barclays, additionally Samsung has provided irrevocable
refund guarantee for the prepayments made by the Group.
Operational risk
Currently the Group has not reached FID for one of the FLEX LNG vessels. Operational
risks mainly relate to expenditure being higher than forecast, risks to the environment
and risks to the safety of people working on the vessels.
50 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI