FLEX LNG Group
Consolidated and Company
Annual Report and Financial
Statement 2011
1 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
General Information, FLEX LNG Ltd
Directors
David McManus (Chairman)
Philip Fjeld
Scott Pearl
Christopher Pittinger
Ian Beveridge
Eiji Wakiwaka
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
has aimed 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.
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.
From its establishment, the vision of the Group has been to be an early mover in owning
and operating floating LNG production units. As the market for floating LNG production
has failed to mature as quickly as the Company had expected, and as described further
below, the Group is now also seeking exposure across the LNG value chain in order to
maximise shareholder value.
Commercial Update
In April 2011 the Group announced that it had signed agreements for a floating
liquefaction (“FLNG”) project in PNG (the “Gulf LNG Project”). The Gulf LNG Project would
have liquefied and exported gas from the Elk and Antelope gas fields in the Gulf Province
of PNG. The objective had been for the Gulf LNG Project to have reached a Final
Investment Decision (“FID”) in December 2011. In December 2011 the agreements
between the project partners were allowed to lapse, due to lack of progress with the Gulf
LNG Project. With the front-end engineering and design (“FEED”) work completed at that
stage, the Company has taken the technical preparations necessary to support FID, if
and when the project stakeholders are able to finalise project terms.
Given the uncertainty surrounding the timing of FID for the Gulf LNG Project, Samsung
and FLEX have expanded the scope of their discussions to include negotiations for the
alternative deployment, after deductions to be agreed, of the capital paid by FLEX LNG as
instalments to Samsung (“Alternative Deployment”). The parties have included in such
discussions the possibility of Alternative Deployment by FLEX to permit construction of
LNG carrier and/or regassification vessels.
3 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Chairman’s Statement
Market Update
At present, there are no commercially operational offshore liquefaction projects.
However, in recent years, a number of proposed FLNG projects have been pursued.
These have included Shell's Prelude project (Australia), Woodside's Sunrise project
(Australia/Timor Leste) and Petrobras' Tupi pre-salt development offshore Brazil, with
FID having been taken on the Prelude floating liquefaction project in May 2011. A range
of national oil companies, majors and independent operators are involved, to a varying
degree, in the potential development of Floating LNG over the coming years. Overall,
there are good long term fundamentals for the offshore LNG industry, with prospective
FLNG developments being identified in a number of locations from deep water to near
shore solutions.
On the demand side there is a strong global picture with some commentators predicting
demand for LNG to nearly double over the next decade, to over 400m tonnes a year. This
rise is being driven by a number of factors; the effects of the Fukushima disaster, which
has encouraged Japan to switch from nuclear to gas; a long-term increase in European
demand as North Sea supplies decline and countries such as Germany back away from
atomic power; and the emergence of LNG buyers in China, India, the Middle East and
Latin America. Additionally global LNG trade continues to grow at a faster pace than
both overall demand for natural gas and volumes transported by pipeline, with LNG
accounting for around 10 percent of the market.
The Path Ahead
The Company is currently focused on completing the restructuring negotiations with
Samsung. It is hoped this will then enable the Company to move forward with the
Alternative Deployment and to also allow the Group’s FLNG solution to be further
developed and marketed to customers. I believe there are currently a number of
opportunities for the Group to use the Company’s expertise and ability to assist resource
owners to develop and monetise their projects.
David McManus
Chairman
4 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
BOARD OF DIRECTOR’S REPORT 2011
Business update
FLEX LNG is an innovative company founded with the purpose of producing LNG offshore
by commercialising what could be amongst the world’s first LNG Producers. The major
activity in 2011 related to completion of FEED work on a potential LNG Producer unit for
the Gulf LNG Project.
FLEX LNG believes it has one of the industry’s more advanced FLNG concepts, where
around 400,000 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 2011.
In April 2011 the Group announced that it had signed agreements with IOC, PACLNG and
Samsung for a FLNG project in PNG with targeted start of operations in 2014. The Gulf
LNG Project was expected to have liquefied and exported gas from the Elk and Antelope
gas fields in the Gulf Province of PNG. Samsung undertook the FEED work for the hull
portion of the FLNG unit; whilst a Worley Parsons led JV was responsible for the FEED
work for the topside under contract with Samsung.
The objective had been for the Gulf LNG Project to have reached FID in December 2011.
In December 2011 the multiparty agreements among IOC, PACLNG and Samsung and
the framework agreement between FLEX and the sponsors of the Gulf LNG Project were
permitted to lapse due to lack of progress by the Gulf LNG Project sponsors. FLEX LNG is
currently unable to forecast the expected timing of a potential FID for the Gulf LNG
Project.
With the FEED work that has been executed, the Company believes it has taken technical
preparations necessary, to the extent possible at this stage, to support FID, if and when
the project sponsors, the PNG Government and other stakeholders are able to finalise
project terms. In the meantime the Company continues to provide ongoing technical
assistance to IOC and PACLNG.
In light of the uncertainty surrounding the timing of FID for the Gulf LNG Project, the
2011 Preliminary Agreement between FLEX LNG and Samsung was allowed to lapse in
early 2012 and the Company and Samsung have now expanded the scope of their
discussions to include restructuring of existing contracts and negotiations for the
Alternative Deployment, which would include the possibility of the construction of LNG
carrier and/or regassification vessels. The Company continues to expect to conclude
these negotiations over the coming months.
Given this, the Group has completed a review of the carrying amounts of the four LNG
Producers, instalment payments and capitalised costs. Based on a preliminary calculation
the Group has recognised an impairment write-down on the four units of $112.3m,
additional details in note 8. The Company currently expects to have greater clarity as to
the carrying value at the completion of negotiations with Samsung. The amount of capital
transferred for Alternative Deployment will depend on a number of factors that are not
directly under the control of the Group (including the commercial terms for the
restructuring and Alternative Deployment options).
5 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
BOARD OF DIRECTOR’S REPORT 2011 (Continued)
Funding and Going Concern
In the event of a positive FID on the Gulf LNG Project, given the lapse of the 2011
Preliminary Agreement, the Company would need to agree a revised instalment profile
with Samsung for the construction of the FLNG unit. The Company would then need to
raise financing for both working capital and instalment payments, as necessary, to meet
the agreed profile, including the final instalment.
In the event that Samsung and FLEX LNG agree to pursue an Alternative Deployment the
Company expects there to be a number of financing alternatives for raising working
capital and instalment requirements; this will depend, among other things, on the
number of vessels ordered, the debt equity ratio, level of instalments available for
redeployment, economic terms of utilisation and final capital cost.
In the meantime, at current run rates, the Company expects to have sufficient working
capital into 2013.
In the event that no agreement is reached with Samsung on restructuring of the LNG
Producer contracts and/or the Alternative Deployment, the Company will need to
consider alternative options open to the Company as well as the timing for raising
additional working capital.
In all cases where the Company may require additional funding, there can be no
assurance that such funds may be raised on terms that are reasonable if at all.
In May 2011 the Company issued 11,315,080 shares to IOC and PACLNG at an average
price of NOK 4.59 and thereby raised $9.3m of additional capital. In addition a short term
loan of $10.0m was raised from Samsung and in 2012 the Company notified Samsung to
set off the amount against the shipbuilding instalments paid in by the Company.
Considering the above and the risks noted below the Board believes that the going
concern assumption currently remains appropriate for the Group.
Risks
The Company was founded in 2006 and had since its inception focused on the
engineering and construction of the LNG Producer units. More recently, the Company has
also focused on opportunities for Alternative Deployment. 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. In
the historical contracts there are remaining commitments of $2,500m to Samsung, which
the Company is looking to restructure as part of the Alternative Deployment of capital.
6 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
BOARD OF DIRECTOR’S REPORT 2011 (Continued)
Risks (continued)
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.
In relation to the current restructuring negotiations with Samsung there can be no
assurance that agreement will be reached or that it will be reached in a manner that is
favorable for the Company. In the event no agreement is reached with Samsung on
restructuring of existing contracts and/or the Alternative Deployment of its invested
capital, the Company will need to consider the alternative options open to the Company
as well as the timing for raising additional working capital. A summary of the current
Samsung contractual position is provided in note 16.3
Additional detail on working capital requirements and analysis of risks to the Company 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 Group completed the FEED for the Gulf LNG Project. The costs
capitalised in the year on the four units were $23.5m (2010: $12.6m). The cash balances
at 31 December were $14.8m (2010: $9.9m). In the twelve months in 2011 the
operating cash inflow was $0.5m (principally the operating loss, working capital
movements and a short term loan of $10.0m); investing activities outflow $23.5m (FEED
costs); and financing activities inflow $27.9m (proceeds from a share subscription by IOC
and PACLNG, and deferred payments on the FEED costs). The retained loss for the year
was $136.0m (2010: $108.9m), which has been transferred to reserves. The loss for the
year included an impairment write down of $112.3m (2010: $97.8m).
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 $16.9m (2010: $16.6m). The
cash balances at 31 December were $14.4m (2010: $9.1m). In the twelve months in
2011 the operating cash inflow was $12.7m (principally a short term loan of $10.0m and
the non cash profit and loss accounting entries); investing activities outflow $16.9m
(additional loans to subsidiaries), and financing activities inflow of $9.5m on the proceeds
from a share subscription by IOC and PACLNG. The retained loss for the year was
$119.7m (2010: $115.4m), which has been transferred to reserves. The loss for the year
includes an impairment write down $109.4m on the inter group loans to the vessel owner
companies following the impairment of the vessel assets values (2010: $114.3m). The
Directors do not recommend the payment of a dividend.
The Board
There have been changes in the composition of the Board during the financial year. In
March 2011 two additional Directors were appointed, Keith Meyer and Kathleen
Eisbrenner, and in June 2011 Kathleen Eisbrenner resigned. At the 2011 AGM Keith
Meyer, Anders Westin, James MacHardy and James van Hoften either did not stand for
re-election or were not reappointed. The ASM appointed the following new directors,
David McManus, Christopher Pittinger and Eiji Wakiwaka.
7 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
BOARD OF DIRECTOR’S REPORT 2011 (Continued)
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 was used to target reductions throughout 2011.
Working Environment and Personnel
At the end of 2011, FLEX LNG and its subsidiaries had in total 39 employees and
consultants, 32 men and 7 women. All personnel are employed either by FLEX LNG
Management Limited, FLEX LNG Management (Norway) AS or 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 less than 0.5% (2010: 0.4%)
during the accounting year. FLEX LNG’s Board of Directors currently consists of 7 men.
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
26 April 2012
David MacManus (Chairman)
Aoki Hiromichi
Scott Pearl
Ian Beveridge
Eiji Wakiwaka
Christopher Pittinger
Philip Fjeld
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 2011 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
26 April 2012
David MacManus (Chairman)
Aoki Hiromichi
Scott Pearl
Ian Beveridge
Eiji Wakiwaka
Christopher Pittinger
Philip Fjeld
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
section 3-3b) of the Norwegian Accounting Act and 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 Norwegian Accounting Act is found on www.lovdata.no and the
Code of Practice is found on www.nues.no.
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 and the Company will also look to comply with the material aspects of the Code of Practice for Reporting
IR Information. Additionally policies have been put in place to cover health and safety, quality and environment
commitment including ISO 9001 and 14001. The Company believes that these policies broadly set out the
Company’s corporate social responsibility. 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
and associated activities, including LNG transportation. The objectives are within the framework of the
Company’s Memorandum and Articles of Associations, which may be reviewed at www.flexlng.com. The
objectives stipulated 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 has been to become a leader in
owning and operating floating LNG production units and associated activities. More recently, the Company has
also focused on opportunities for Alternative Deployment. 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 2011 was USD 1,247,783.13, divided into 124,778,313
shares of USD 0.01 each. The directors believe this is currently satisfactory given the Group’s business and
objectives, but will be increased if the Company raises additional funds.
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.
10 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Corporate Governance Report (continued)
3 ) Equity and dividends (continued)
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.
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 for the Company to acquire its own shares.
4 ) Equal treatment of shareholders and transactions with close associates
The Company has only one share class, with identical voting rights. All shareholders are treated equally and the
Articles of Association do not contain any restrictions on voting rights. 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 2011 and 2010 resolved
that at least half of all 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 board remuneration for the
2011 year shall become unlocked on the first anniversary after their grant.
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. Currently, given that the Company is pre-commercial,
this shorter period is considered to be sufficient for shareholders to consider the matters being voted on. 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 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 and given
the good communications with shareholders, it does not believe that it is necessary for Directors, Nomination
Committee and auditor to be physically present at the General Meetings, and that the 14 days notice is
sufficient.
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, Jean-Francois Cristau and Marcus Hansson 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 39 employees and contractors at 31 December 2011, the Company does not
have a corporate assembly.
The Company’s Board of Directors currently comprises seven directors, of whom six 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 seven members, two directors are also associated with shareholders
with holdings exceeding 10%; Mr. A. Hiromichi and Mr. S. Pearl. 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 2012. They may be removed by a majority vote
at any time. Currently the Board has elected the Chairman, rather than the shareholders, given the Company’s
current development status the Company believe that this is satisfactory and that the Chairman can ensure that
the board is effective in its tasks of setting and implementing the company’s direction and strategy.
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 August 2011, the directors received 50% to 100% of their remuneration
in shares for 2011.
All Directors participated in the physical Board meetings in 2011, on one such meeting a director joined by
phone conference.
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. David McManus, Chairman (58)
Mr. McManus has served on the Board since August 2011, and was elected as chairperson in September 2011.
An exceptionally experienced international business leader in the Energy Sector, with strong technical and
commercial skills currently serving as Executive Vice Present and Head of International Operations for Pioneer
Natural Resources, with offices in London, Tunis and Cape Town, focusing on exploration and commercialisation
of reserves. Concurrently serving as Non Executive Director for two UK listed companies; Cape plc an energy
service company, which has been involved as a contractor in more than 50% of the world's LNG facilities,
including Sakhalin, RasGas, Qatargas, Damietta, Idku, North West Shelf, Pluto, Arzew and floating
regasification in Italy; and Rockhopper Exploration plc an exploration company with assets in the Falkland
Islands. 36 years experience in Technical, Commercial, Business Development, General management and
Executive roles across all aspects of the oil and gas business, spanning the world, including; BG Group, ARCO,
Ultramar, Shell and Fluor corporation. Mr. McManus is a graduate of Heriott Watt University, Edinburgh.
Mr. Scott Pearl, Board member (38)
Mr. Pearl has served on the Board since 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.
Mr. Ian Beveridge, Board member (48)
Mr. Beveridge has served on the Board since October 2007. Mr. Beveridge is the CEO of the Schulte Group and
has been associated with the Schulte group for 16 years, until 2006 as Managing Director. Before that Mr.
Beveridge worked 3.5 years with Coopers & Lybrand in Johannesburg, leaving as Senior Supervisor. Mr.
Beveridge obtained a Bachelor of Commerce (Honours) in 1987 and qualified as a chartered accountant in
South Africa. Mr. Beveridge is also member of the Gard Board of Directors and the German Committee of Det
Norske Veritas.
Mr. Aoki Hiromichi, Board member (53)
Mr. Aoki has served on the Board since July 2008. Mr. Aoki is a 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. Christopher Pittinger, Board member (52)
Mr. Pittinger has served on the Board since August 2011. He is currently an independent strategic advisor to
the Chief Executive Officers of Dolphin Energy Limited and Mubadala Development Company and Mubadala
Development Company (both located in Abu Dhabi) and the Kazakh National Oil Company and several of its
affiliates. Previously he was a partner at the law firm Shearman & Sterling, where he worked for 20 years. He
specialised in oil and gas joint ventures, project development and financings, asset acquisitions and disposals,
upstream production sharing and concession arrangements, oil and gas taxation and regulation, transport
arrangements and downstream projects on the petrochemicals and refining sectors. He is a graduate of Boston
College and holds a Juris Doctor Degree from the University of Virginia School of Law.
Mr. Eiji Wakiwaka, Board member (62)
Mr. Wakiwaka has served on the Board since August 2011. He has extensive LNG marketing and project
execution experience in Asia. He is currently a Program Director for the Clinton Climate Initiative. Previously he
was the President for BP Japan where he had overall responsibility for sales of BP and Castrol lubricants, Oil and
Gas trading and strategic account management. He was also responsible for the BP Gas business in North Asia,
covering the FID for the Tangguh project, LNG marketing and partner relationship management and other
projects worldwide (Abu Dhabi LNG, Northwest Shelf, Bontang BTC pipeline and TKN BP). Mr. Wakiwaka holds a
MBA from Harvard University and Bachelor of Commerce from Waseda University.
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. Philip Eystein Fjeld, Board Member & Executive Management CEO (37)
Mr. Fjeld is the co-founder of FLEX LNG, which was established in August 2006 and is the CEO of FLEX LNG
Management. 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 (39)
Mr. Tveitnes is the co-founder of FLEX LNG, which was established in August 2006 and is the CTO of FLEX LNG
Management. 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 (32)
Mr. Ueland is the co-founder of FLEX LNG, which was established in August 2006 and is the CFO of FLEX LNG
Management. 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.
Capt. Gary Baron, Chief Operating Officer (53)
Capt. Baron, joined FLEX LNG Management in October 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 budget 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 Commercial Committees, the Board has delegated
some of its work to these committees, yet it has retained the responsibility for overall decision making. The
composition of the committees is as follows; Compensation – David McManus, Eiji Wakiwaka and Scott Pearl;
Technical - David McManus, Aoki Hiromichi and James MacHardy; Audit – Ian Beveridge and Scott Pearl; and
Commercial - David McManus, Christopher Pittinger and Eiji Wakiwaka. The committees perform the following
roles; Compensation – to review and recommend remuneration for senior management; Technical – to review
the technical designs developed by the Company and to challenge Management to achieve the optimal balance
between cost and technical capability; Audit – to review the financial reporting and controls for the Group; and
Commercial – to review commercial agreements at an early stage and to then advise Management and the
Board. 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 12 months in 2011 the Board has convened
more often.
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.
14 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Corporate Governance Report (continued)
9 ) The work of the Board of Directors (continued)
The Chairman of the Board of Directors carries a particular responsibility for ensuring that the Board of
Directors performs its duties in a satisfactory manner and that the Board is well organised. The Board has the
overall responsibility for the management of the Group and has delegated the daily management and
operations to the CEO, Mr. P. Fjeld, who is appointed by and serves at the discretion of the Board, and also
reports to the Board. Further, the CEO of the management company, is responsible for ensuring that the
Company’s accounts are in accordance with all applicable legislation, and that the assets of the Company are
properly managed. His 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, an alternate 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 vessel construction; settlement of the contract restructure with Samsung on
reasonable terms; agreeing the level of remaining capital with Samsung on reasonable terms; achieving FID on
the Gulf LNG Project, or agreement to the Alternative Deployment and the economics of such Alternative
Deployment; the contractual consequences if this does not occur; potential Samsung claims under its
agreement, with the Company; the political situation in PNG; any IOC/PACLNG contractual arrangements being
on economically viable terms; obtaining finance and working capital at reasonable terms; and being able to
secure employment contracts on reasonable terms for alternative vessels constructed by Samsung; retaining
key staff, and general 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 potential growth of the business and the proposed application of new
technology. The Board, working with the Audit Committee and through 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 regular updates 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.
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 non-executive directors have
been granted share options and no directors are part of the incentive programs available for the executive
management and/or other employees, other than Mr. P. Fjeld in his capacity as an employee of FLEX LNG
Management Limited, details in section 12 below.
As a general rule, no directors (or companies with which they are associated) shall take on specific assignments
for the Company in addition to their appointment as director. If such assignments are made, it shall be
disclosed to the full Board and the remuneration shall be approved by the Board. Further, all remuneration paid
to each of the directors shall be described in the Annual Report. Such description shall include details of all
elements of the remuneration and benefits of each member of the Board, any remuneration paid in addition to
normal director’s fees included.
15 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Corporate Governance Report (continued)
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
within the Group and to retain employees during the current phase of the business. The guidelines for the
remuneration of the executive management were communicated at the 2011 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. The Board will consider the
appropriateness of arranging for a valuation by an independent expert. If the Board finds itself unable to give a
recommendation to shareholders on whether or not to accept the offer, it will 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 Norwegian Securities Trading Act, a mandatory offer for the remaining shares will be triggered if a
shareholder becomes the owner of more than 1/3 of the shares in the Company.
15 ) Auditors
The auditor submits the main features of the plan for the audit of the Company to the Audit Committee on an
annual basis. The auditor does not participate in meetings of the Board of Directors that deal with the annual
accounts. Via the Audit Committee the auditor reviews any material changes in the Company’s accounting
principles, comments on any material estimated accounting figures and reports all material matters on which
there has been disagreement between the auditor and the executive management of the Company. The
company believes the auditor does not need to be physically present at the Company’s AGM given the pre-
commercial nature of the Group. Annually the auditor presents to the Audit Committee a review of 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 and enables the auditor to communicate with members of the Board.
16 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Corporate Governance Report (continued)
15 ) Auditors (continued)
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
2011
Group
2010
Company Company
2010
2011
Operating revenues
Other income
Gross revenues
0
0
0
0
0
0
0
0
0
0
0
0
Administrative expenses
Other operating costs
3
8/2
13,433
112,291
10,214
97,751
2,596
1,370
109,398
114,269
Operating loss
(125,724)
(107,965) (111,994)
(115,639)
Finance cost
Finance income
Loss before tax
Income tax expense
Loss after tax
Loss for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
Earnings per share
(USD):
- Basic
- Diluted
4
4
7
5
5
(10,224)
77
(938)
222
(7,817)
76
0
214
(135,871)
(108,681) (119,735)
(115,425)
88
173
0
0
(135,959)
(108,854) (119,735)
(115,425)
(135,959)
(108,854) (119,735)
(115,425)
(135,959)
(108,659) (119,735)
(115,425)
0
(195)
0
0
(135,959)
(108,854) (119,735)
(115,425)
Group
2011
Group
2010
Company Company
2010
2011
(1.13)
(0.96)
(1.00)
(1.02)
(1.13)
(0.96)
(1.00)
(1.02)
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
2011
Group
2010
Company Company
2010
2011
Loss for the year
(135,959)
(108,854) (119,735)
(115,425)
Exchange differences on
translation
Other comprehensive (loss)
Total comprehensive loss
for the period
Attributable to equity holders
of the parent
Non-controlling interests
(14)
(14)
(9)
(9)
0
0
0
0
(135,973)
(108,863) (119,735)
(115,425)
(135,973)
(108,668) (119,735)
(115,425)
0
(195)
0
0
(135,973)
(108,863) (119,735)
(115,425)
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
2011
2010
2011
2010
ASSETS
Non-current assets
New building contracts
Plant and equipment
Investment – unquoted
Loans and investments
8
9
2
2
342,412
178
431,232
267
0
0
0
0
0
0
875
0
0
342,462
0
434,937
Total non-current assets
342,590
432,374
342,462
434,937
Current assets
Other current assets
Cash and cash equivalents
10
11
Total current assets
TOTAL ASSETS
EQUITY AND LIABILITIES
1,049
14,754
2,368
9,889
15,803
12,257
320
14,431
14,751
158
9,065
9,223
358,393
444,631
357,213
444,160
Equity
Issued capital
Share premium
Other equity
Equity attributable to
equity holders of the
parent
Total equity
Non-current liabilities
Other financial liabilities
Total non-current
liabilities
Current liabilities
12
12
1,248
1,130
1,248
1,130
561,946
(246,788)
552,490
561,946
(123,125) (217,694)
552,490
(110,269)
316,406
430,495
345,500
443,351
316,406
430,495
345,500
443,351
14
29,238
10,937
29,238
10,937
0
0
Accounts payable
Accruals and other payables
14
Total current liabilities
Total liabilities
TOTAL EQUITY AND
LIABILITIES
198
12,551
12,749
567
2,632
3,199
41,987
14,136
64
11,649
11,713
11,713
358,393
444,631
357,213
444,160
Board of Directors of FLEX LNG Ltd 26 April 2012
David McManus (Chairman)
Aoki Hiromichi
Scott Pearl
Ian Beveridge
Eiji Wakiwaka
Christopher Pittinger
Philip Fjeld
20 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
0
0
445
364
809
809
Consolidated Statement of Changes in Equity – FLEX LNG Group
(figures in USD,000)
For the year ended 31
December 2011
Share
capital
P&L reserve
Share
premium
reserve
552,490
1,130
Exchange
translation
reserve
(300)
Option,
warrant and
shares
10,091
(132,916)
(135,959)
(135,959)
(14)
(14)
At 01.01.11
Loss for the period
Other comprehensive income
Total comprehensive income
Expenses related to share
issue
Shares issued
Share-based payment
(options / warrants)
Share-based payment
(shares)
At 31.12.11
For the year ended 31
December 2010
At 01.01.10
Loss for the period
Other comprehensive income
Total comprehensive income
Exchange adjustments
Disposal of non controlling
interest
Shares issued
Expenses related to share
issue
Share-based payment
(options / warrants)
Share-based payment
(shares)
At 31.12.10
Total to
owners of
the parent
430,495
(135,959)
(14)
(135,973)
(43)
17,162
4,265
7,545
4,265
500
500
Non
controlling
interests
0
Total
equity
430,495
(135,959)
(14)
(135,973)
(43)
17,162
4,265
500
118
(43)
9,499
Share
capital
1,127
Share
premium
reserve
552,243
3
282
(35)
1,248
561,946
(268,875)
(314)
22,401
316,406
0
316,406
P&L reserve
Exchange
translation
reserve
Option,
warrant and
shares
Total to
owners of
the parent
Non
controlling
interests
(24,257)
(108,659)
(108,659)
(291)
7,819
536,641
(9)
(9)
(108,659)
(9)
(108,668)
0
0
0
(35)
(285)
2,367
2,367
190
190
Total
equity
569,788
(108,854)
(9)
(108,863)
(140)
33,147
(195)
(195)
(140)
(32,812)
(32,812)
0
(35)
2,367
190
1,130
552,490
(132,916)
(300)
10,091
430,495
0
430,495
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 2011
At 01.01.11
Loss for the period
Total comprehensive income
Expenses related to share
issue
Shares issued
Share-based payment
(options / warrants)
Share-based payment
(shares)
At 31.12.11
For the year ended 31
December 2010
At 01.01.10
Loss for the period
Total comprehensive income
Expenses related to share
issue
Shares issued
Share-based payment
(options / warrants)
Share-based payment
(shares)
At 31.12.10
Share
capital
1,130
Share
premium
reserve
552,490
P&L reserve
(120,360)
(119,735)
(119,735)
118
(43)
9,499
Exchange
translation
reserve
0
Option,
warrant and
shares
10,091
Non
controlling
interests
0
Total to
owners of
the parent
443,351
(119,735)
(119,735)
(43)
7,545
17,162
4,265
4,265
500
500
Total
equity
443,351
(119,735)
(119,735)
(43)
17,162
4,265
500
1,248
561,946
(240,095)
0
22,401
345,500
0
345,500
Share
capital
1,127
Share
premium
reserve
552,243
3
(35)
282
P&L reserve
Exchange
translation
reserve
Option,
warrant and
shares
Total to
owners of
the parent
Non
controlling
interests
Total
equity
(4,935)
(115,425)
(115,425)
0
7,819
556,254
0
556,254
(115,425)
(115,425)
(35)
0
2,367
(285)
2,367
190
190
(115,425)
(115,425)
(35)
0
2,367
190
1,130
552,490
(120,360)
0
10,091
443,351
0
443,351
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
Cash flow from operating activities
Loss before tax
Note
2011
2010
(135,871) (108,681)
Adjustment to reconcile loss before tax to net cash flow
Non Cash:
Finance income
Finance expense
Option and warrant costs
Share based payment expense
Depreciation
Impairment charge
P&L on asset disposal
Working capital adjustments:
Decrease / (increase) in prepayments
(Increase) / decrease in trade and other receivables
Increase / (decrease) in trade and other payables1
Income taxes paid
Interest received
Net cash flow from operating activities
Cash flows from investing activities
Purchase of plant and equipment
Proceeds from sale of fixed assets
Payment on new building contracts &
capitalised expenditure
Disposal / acquisition of subsidiary, net 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 other financial liabilities
Net cash flow from financing activities
Net currency translation effect
Net increase / (decrease) in cash and cash
equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Note1 includes a $10.0m short term loan.
4
4
8
3
9
8
2
14
(77)
10,224
4,444
49
146
112,291
(1)
124
(329)
9,602
(222)
938
2,367
190
211
97,751
(19)
(133)
140
(78)
602
(7,536)
(140)
69
(324)
304
531
(7,556)
(57)
1
(98)
2
(23,471)
(12,592)
0
(24)
(23,527)
(12,712)
9,617
(43)
18,301
27,875
0
(35)
4,522
4,487
(14)
(9)
4,879
(15,781)
9,889
25,679
11
14,754
9,889
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
2011
2010
Cash flow from operating activities
Loss before tax
Adjustment to reconcile loss before tax to net cash flow
Non Cash:
Finance income
Finance expense
Impairment charge
Option and warrant costs
Share based payment expense
Working capital adjustments:
Decrease / (Increase) in prepayments
(Increase) in trade and other receivables
Increase / (decrease) in trade and other payables1
Interest received
(119,735) (115,425)
4
4
2
(76)
7,817
(214)
0
109,398
4,444
114,269
2,367
49
190
56
(209)
10,904
12,648
67
(94)
(3)
(346)
744
300
Net cash flow from operating activities
12,715
1,044
Cash flows from investing activities
Loans and investments in subsidiaries
2
(16,923)
(16,589)
Net cash flow used in investing activities
(16,923)
(16,589)
Cash flows from financing activities
Proceeds from issue of share capital
Costs of share issue
Net cash flow from financing activities
9,617
(43)
9,574
0
(35)
(35)
Net increase / (decrease) in cash and cash
equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Note1 includes a $10.0m short term loan.
5,366
(15,580)
9,065
24,645
11
14,431
9,065
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, and
listed on the Oslo Axess exchange. The Group includes eight 100% owned active
subsidiaries and as shown under note 2 below and the Company’s interest in Minza
Limited. The Group produces consolidated accounts incorporating these companies
(including Minza up until October 2010) and its activities are focused on developing
production, transportation and/or storage of liquefied natural gas and related activities.
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. Company accounts are produced to comply with the Oslo listing
requirements. Reported values are rounded to the nearest thousand (USD 000) except
when otherwise indicated.
The financial statements for the period ended 31 December 2011 have been prepared in
accordance with the International Financial Reporting Standards (IFRS) as adopted by EU
and valid as of 31.12.11. The financial statements were approved by the Board of
Directors on 26.04.12 for issue on 27.04.12. 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 2011;
IAS 24 Related Party Disclosures (Amendment); IAS 32 Financial Instruments:
Presentation – Classification of Rights Issues (Amendment); IFRIC 14 Prepayments of a
minimum funding requirement (Amendment); IFRIC 19 Extinguishing Financial Liabilities
with Equity Instruments; 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 adoption of these amendments has had no material
impact on the financial position or performance of the Group or Company.
At the end of 2011, some new standards, changes in existing standards and
interpretations have been issued, but not yet become effective:
IFRS 9 Financial Instruments: Classification and Measurement; Amendments to IFRS 7
Financial Instruments – Disclosures; IFRS 1 Severe Hyperinflation and Removal of Fixed
Dates for First-time Adopters; IFRS 10 Consolidated Financial Statements; IFRS 11 Joint
Arrangements, IFRS 12 Disclosure of Involvement in Other Entities; IFRS 13 Fair Value
Measurement; Amendments to IAS 12 Income Taxes; IAS 27 Revised: Separate Financial
Statements; IAS 28 revised: Investment in Associates and Joint Ventures; IAS 1
Amendment: Presentation of Items of Other Comprehensive Income; and IAS 19
Amendment: Employee Benefits.
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.
25 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 1: General information and significant accounting
policies (continued)
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 would normally be attained if
FLEX LNG owned, 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 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 Ltd, using
consistent accounting principles.
The acquisition of an asset, group of assets or entity that does not constitute a business
is not a business combination. In such cases the acquirer will identify and recognise the
individual identifiable assets acquired and liabilities it assumes. The cost of the
acquisition should be allocated to the individual identifiable assets and liabilities on the
basis of their relative fair value at the date of purchase.
Intragroup transactions and balances, including internal profits and unrealised gains and
losses, have been eliminated in full. Unrealised gains from transactions with associated
companies are eliminated in the FLEX LNG’s share of the associated companies.
Correspondingly, unrealised losses are eliminated, but only if there are no indications of
any impairment in the value of the asset that is sold internally. The consolidated financial
statements have been prepared under the assumption of uniform accounting principles
for equal transactions and other events under equal circumstances.
1.4 Use of estimates and judgements when preparing the annual financial
statements
The annual financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRS). This means that management has used estimates
and assumptions that have affected assets, liabilities, revenues, expenses, cash flows
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
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 (continued)
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 (payments less previous
impairments) is calculated on a value in use basis and as a going concern. An impairment
exists when the carrying value of the asset exceeds its recoverable amount (the higher of
fair value less cost to sell and value in use). The assumptions behind the value in use
calculation (all of which are subject to a significant degree of risk) are detailed in note 8,
including the assumptions that have the most sensitivity in the calculation. These include
the level of instalments made to Samsung that are available for redeployment, the
results of the Samsung negotiations, the weights used in the average scenario
calculation, contractual terms and future revenue, cost, and utilisation assumptions.
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 concludes a final
investment decision, or obtains a contract for the asset under construction 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.
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. Minza Limited, which is
incorporated in Jersey, was included in the Group up until the Company's option to
acquire all shares in Minza expired in October 2010.
27 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
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 related to making the non-current asset ready
for use. Subsequent costs, such as repair and maintenance costs, are normally
recognised in income statement as incurred. Where 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.
On delivery the total expenditure of the vessel would be decomposed to groups of
components that have different expected useful lives. The different groups of
components would be depreciated over their expected useful lives.
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 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 loan receivables. If and when estimated
recoverable amounts increase, impairments charges are reversed. There is currently no
repayment schedule on the intercompany loans and no interest charged on outstanding
balances.
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 as a finance cost. 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 performed at the vessel level for assets under
construction. During the year an impairment review was completed on the vessel assets,
(contractual payments made to Samsung to be used for LNGP or Alternative Deployment
construction, after deduction of agreed restructure costs) to determine their recoverable
amount, additional details note 8.
Trade receivables
Trade receivables would be 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 include 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 Limited (until
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
2010
246,373
99,689
99,621
99,818
3,705
(114,269)
434,937
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.
2011
262,498
100,407
99,644
99,838
3,742
(223,667)
342,462
Following the impairment write down on the vessel assets, note 8, and the investments
in Minza, note 2, the Company has reviewed the carrying value of the loans to the four
M-FLEX entities and FLEX Petroleum Limited. The valuation has been based on the
recoverable amount for the vessel assets $342.4m ($431.2m), the investments $nil
($3.7m) and that the recoverable amount reflects that the M-FLEX Samsung liabilities are
offset against paid in instalments, although at 31 December these liabilities remain in the
Group balance sheet. The loan amounts in excess of this have been recognised as an
impairment loss in the Company income statement $109.4m ($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 Limited (“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. Following the option lapse, the
resulting change was accounted for as a disposal of the individual assets and liabilities
and a gain of $22k was recognised on the disposal in 2010.
At 31 December 2011 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 $nil and
an impairment loss of $875k (2010: $825k) recognised. 2010 also included a write off on
capitalised costs of $113k. The Group also loaned Minza $1,532k. The terms of the loan
provided that if the loan was not repaid by Minza by 31 October 2011 the loan would
convert into 13.75% of the shares in Minza. The loan bore interest at LIBOR plus 1%.
Currently Minza has not accepted the conversion of the loan into additional share capital;
the Company does not accept this position and is working to resolve the situation. In the
meantime a write down of $1,532k has been made against the loan. The total write down
recognised in the year in relation to Minza was $2,407k (2010: $938k). The following
amounts, in relation to Minza were included in the 2010 consolidated income statement.
32 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 2: Subsidiaries (continued)
Minza Limited (disposed in 2010)
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
202
202
404
(202)
(195)
4
1,759
22
24
(38)
(2,353)
(582)
(1,700)
2,260
(22)
0
(22)
22
Note 3: Administrative expenses
As detailed in note 1.8 capitalised costs include expenses covering compensation for
employees, travel costs, consultant fees, legal costs, engineering and design costs, plus
other costs that are directly attributable to the assets. The amounts in tables 3.1 to 3.3
are prior to this capitalisation.
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
2011
146
1
0
(172)
1,847
2,597
Group
2010
211
(3)
22
(210)
1,536
831
Company
2011
0
0
0
(65)
1,847
2,597
Company
2010
0
0
0
(27)
1,536
831
33 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 3: Administrative expenses (continued)
3.2 Auditors
Expensed fee to the auditors is divided into the following services (exclusive of VAT):
USD,000
Audit
Tax assistance
Total Auditor’s fees
Group
2011
102
47
149
96
73
169
Group Company Company
2010
2011
62
68
2010
0
68
1
63
3.3 Remuneration
During 2011 FLEX LNG had between seven and nine Directors, but no employees. All
employees are engaged by the three management companies.
Staff costs USD,000
Group
2011
Group Company Company
2010
2011
2010
4,314
4,030
596
429
234
163
5,144
0
Wages and salaries
Social security costs
42
0
Pension costs
42
Total employee benefit expenses
Share based payments are covered in note 13. Employees are offered a fixed base
salary. In 2011 and 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 2011 was 35 (2010 – 33). The Company has incurred social security
costs in relation to the payment of Directors fees in the Isle of Man.
0
11
0
11
4,622
Directors fees FLEX LNG, USD,000
Current Directors
David McManus
Philip E. Fjeld
Scott Pearl
Ian Beveridge
Aoki Hiromichi
Christopher Pittinger
Eiji Wakiwaka
Company
2011
Company
2010
70
57
57
57
57
25
25
0
50
50
50
50
0
0
Ex. Directors
80
James A. MacHardy
50
James D.A. Van Hoften
50
Anders Westin
0
Katherine Eisbrenner
Keith Meyer1
0
380
Total Directors’ fees
Note1: This excludes the 150,000 options received under a consultancy agreement prior
to becoming a director.
50% to 100% of the remuneration listed above is paid via the issue of shares by the
Company.
39
32
32
19
36
506
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, Mr. Pittinger and Mr. Hiromichi was
$40k in the year (2010: $40k). All earnings and shares for Mr. Beveridge are assigned to
Bernhard Schulte Investment Holding, Mr. Wakiwaka to Masters K.K, and for Mr. Aoki to
Kawasaki Kisen Kaisha Ltd.
Executive
Management USD,000
Philip Fjeld
Salary and
bonus
250
Sundry
benefits
6
Jostein Ueland
Trym Tveitnes
Gary Baron
250
250
10
2
275
1,025
3
21
Pension
12
13
13
12
Option
costs
124
123
124
51
422
Group
Total
392
396
389
341
96
1,000
50
50
1,518
2011
2010
1,253
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, and Ueland do not have contracts of
employment and their termination rights are determined by statute. Mr. Baron and
Tveitnes have contracts of employment that give a three month notice period. Options
and warrants have been granted as follows Mr. Fjeld, Ueland and Tveitnes 46,800 options
each held personally (issued 22/07/08) and warrant and options via Hansa LNG Limited
as detailed note 13 and 15. Mr. Baron holds 180,000 options, issued over the last four
years.
107
Note 4: Finance costs and revenue
Group Company Company
2010
2011
Finance cost
Option cost for shares issued 1
0
7,817
0
Write-off of financial assets (note 2)
0
0
Total financial cost
7,817
Note1: From the valuation of the share purchase option provided to IOC and PACLNG.
Under the option the two parties were able to subscribe for 11,315,080 shares at an
average price of NOK 4.59, against a share price of NOK 8.22 at the time of grant.
Group
2011
7,817
2,407
10,224
2010
0
938
938
Finance revenue
Interest income
Total financial revenue
Group
2011
77
77
Group Company Company
2010
2011
214
76
214
76
2010
222
222
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.
35 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 5: Earnings per share (continued)
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.
Earnings per share:
2011
2010
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
(135,959)
(119,735)
(108,659)
(115,425)
120,240,027 112,947,425
0
0
120,240,027 112,947,425
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 2011 was $10,970k (2010:
$10,660k).
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 Limited, until 31/10/10. 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
Group
2011
84
4
88
Group
2010
132
41
173
36 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 7: Income tax (continued)
(USD,000)
Current income tax charge
Adjustments in respect of current income tax of previous
years
Income tax expense reported in the income statement
Company Company
2010
0
2011
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 2011 and 2010 is as follows:
(USD,000)
Accounting loss before income tax
Income tax at 0% (2010:0%)
Effect of higher UK, Singapore and Norway tax rates
Effective income tax rate of 0.1% (2010: 0.2%)
(USD,000)
Accounting loss before income tax
Income tax at 0% (2010:0%)
Effective income tax rate of 0% (2010: 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
Group
2011
Group
2010
(135,871) (108,681)
0
173
173
0
88
88
2011
Company Company
2010
(119,735) (115,425)
0
0
0
0
2011
2010
375,997
458,730
0
0
(49,997)
(82,733)
326,000
375,997
37,363
39,339
18,818
8,183
(44,466)
(10,159)
11,715
37,363
17,872
4,653
18,322
4,409
(17,828)
(4,859)
4,697
17,872
431,232
23,471
516,391
12,592
(112,291)
(97,751)
At 31 December
Finance costs of $661k are included in 2011 capitalised costs (2010: $1,156k).
342,412
431,232
37 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 8: New Build Contracts (continued)
The values reported in the balance sheet mainly refer to contractual payments made to
the yard, Samsung, in South Korea. 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 in 2011 carried irrevocable refund guarantees
for the prepayments made by the Group in the case of non-delivery of vessels. In 2012
these guarantees have been closed and the Company currently expects in the case of
agreement for Alternative Deployment, that there would be reinstatement of refund
guarantees. The title for Topside equipment passes gradually during construction and on
payment. In light of the uncertainty surrounding the timing of FID for the Gulf LNG
Project and the lapse of the 2011 Preliminary Agreement between FLEX LNG and
Samsung, the parties have expanded the scope of their discussions to include
negotiations for the Alternative Deployment of the capital invested by FLEX LNG. The
parties have included in such discussions the possibility of deploying the capital already
paid by FLEX LNG to permit construction of LNG carrier and/or regassification vessels.
Currently the negotiations are ongoing as to the form of the restructure with Samsung.
The 2011 carrying value assessment has therefore been based on a weighted average
scenario calculation for the possible outcomes of the negotiations, using a value in use
methodology, assuming Alternative Deployment as the highly likely outcome. The
carrying value of the contractual payments and the capitalised costs are thus dependent
on the IOC/PACLNG contractual arrangements remaining at economically viable terms,
the financial terms of the Alternative Deployment, including the economic terms to which
the new vessels would be utilised, finance being secured at reasonable terms, and the
restructuring of the contracts with Samsung on reasonable terms. In the case of a
negative outcome to these negotiations the carrying value would most likely require
additional material impairment. In the year the Company has recognised impairment
write downs of $112.3m (2010: $97.8m) on the capitalised costs for the four LNG
Producers, based on a current estimate of possible outcomes of the restructuring
negotiations that have been commenced, but not yet concluded (reference also note
17.2). In the 2010 statutory accounts the LNG Producers carrying value was 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, in the weighted average scenario
calculation, the Group has reviewed;
Hull instalments
A) The value in use for the Alternative Deployment, after the instalment transfers from
FLNG vessels 1-4. This has been calculated based on assumptions as to a fully
commissioned cost, expected revenue over the 30-year period and expected operating
costs. The 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 assumptions as to the
tax rate, cost of debt, cost of equity, the beta for the company, interest rates and the
debt to equity ratio; ultimately a post tax WACC of 8.1% 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.
B) The value in use for LNGP vessel 1, after the instalment transfers from vessels 2-4.
This has been calculated based on an assumption as to a fully commissioned cost,
over a 25 year period (expected period of the project), and based on assumptions as
to 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
38 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 8: New Build Contracts (continued)
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 assumptions as to the tax rate, cost of debt, cost of equity, the beta for the
company, interest rates and the debt to equity ratio; ultimately a post tax WACC of
9.0% 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. This
calculation is subject to a number of assumptions as to the future, which may or may
not prove to be accurate.
C) The Company’s best estimate of the recoverable amount for the other possible
resolution of the Samsung agreements. This calculation is subject to a number of
assumptions as to the future, which may or may not prove to be accurate.
Topside and Capitalised Costs
The previous capitalised costs represented the FEED work performed on the vessel
designs for the West Africa and PNG projects for near shore and offshore operation.
The Company have reviewed this work to determine the elements that are generic to
other projects and then estimated the ability to reuse and commercialise these generic
LNGP designs for future projects. This calculation is subject to a number of
assumptions as to the future, which may or may not prove to be accurate.
The resultant recoverable value for the asset carrying value after the impairment write
down of $112.3m (2010: $97.8m) is $342.4m (2010: $431.2m). Given the asset value,
that the materialisation of any projects would not be until some point in the future, and
the duration of the projects, changes in assumptions (in particular; charter revenue,
capex, the level of instalments available for redeployment, the mix probability for the
possible outcomes, oil price, oil price slope, the ability to reuse and commercialise the
LNGP designs, required 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 and events. Unanticipated changes in these assumptions,
including potentially significant ones, are possible and could require an additional
provision and/or a mix change for impairment in a future period. Given the nature of
these evaluations the management cannot reasonably quantify the impact of changes in
these assumptions.
Note 9: Equipment
(USD,000) - Group
Cost
Cost 1 January
Additions
Disposals
Disposal of subsidiary
31 December
2011
766
57
(22)
0
801
2010
755
103
(87)
(5)
766
39 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 9: Equipment (continued)
(USD,000) - Group
Depreciation
Cost 1 January
Depreciation charge for the year
Exchange movement
Disposal of subsidiary
Disposals
31 December
Net book value
At 31 December
2011
499
146
0
0
(22)
623
2011
178
2010
370
211
1
(1)
(82)
499
2010
267
Note 10: Other current assets
(USD 000)
Debtors
Prepayments
Loans and receivables
Other receivables
Total other current assets
Group
Group Company Company
2011
2010
490
257
0
302
1,049
179
381
1,532
276
2,368
2011
282
38
0
0
2010
64
94
0
0
320
158
Note 11: Cash and cash equivalents
(USD 000)
Group
2011
Group Company Company
2010
2011
2010
9,065
Cash at the bank and in hand
14,754
9,889
14,431
Cash and cash equivalents in the
balance sheet and cash flow
statement
Overdraft facility
14,754
9,889
14,431
9,065
0
0
0
0
$1,000k is held in deposits of greater than 3 months and is shown as cash and cash
equivalents, this amount can be immediately called upon subject to interest penalties.
Note 12: Share capital, shareholder information and
dividend
Group & Company
Ordinary shares, nominal amount USD 0.01
Total number of shares
2011
2010
124,778,313 113,043,243
124,778,313 113,043,243
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 2011
Expenses related to share issue
New shares issued
Issue in lieu of remuneration
31 December 2011
Shares
(’000)
Share
Capital
(USD’000)
Share
Premium
(USD’000)
113,043
1,130
552,490
0
11,315
420
124,778
Shares
0
113
5
(43)
9,230
269
1,248
561,946
Share
Capital
Group & Company
Ordinary shares - Issued and fully paid:
At 1 January 2010
Expenses related to 2009 share issue
Issued in lieu of remuneration
31 December 2010
(’000)
(USD’000)
112,746
0
297
113,043
1,127
0
3
1,130
Share
Premium
(USD’000)
552,243
(35)
282
552,490
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% to 100% of their remuneration for the year. These Directors’ shares
for the remuneration, post the 2011 ASM to 31/12/11 had not been issued at 31/12/11
and are recorded in the option, warrant and share reserves, $144k (2010: $95k).
Computation of earnings per share and diluted earnings per share is shown in note 5.
Other reserves: FLEX LNG has in the year recognised under other equity $4,494k
(2010: $2,272k) in relation to the cost of warrants, options and shares issued.
41 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 12: Share capital, shareholder information and
dividend (continued)
Main group shareholders at 31.12.11 are:
Shareholder:
KAWASAKI KISEN KAISHA LTD
JP MORGAN CLEARING CORP. 1
STATE STREET BANK AND TRUST CO.1
INTEROIL FINANCE INC.
SIX SIS AG1
B SCHULTE INVESTMENT HOLDING
JP MORGAN CHASE BANK1
JP MORGAN SECURITIES LIMITED
INVESCO PERP EUR SMALL COMP FD
GOLDMAN SACHS & CO - EQUITY1
KISTEFOS INVESTMENT SD
BANK OF NEW YORK MELLON SA/NV1
GOLDMAN SACHS INT. - EQUITY -1
BANK OF NEW YORK MELLON (LUX) S.A.1
COLLINS STEWART (CI) LIMITED
CREDIT SUISSE SECURITIES (USA) LLC 1
P-INVEST AS
DEUTSCHE BANK AG LONDON 1
JP MORGAN BANK LUXEMBOURG 1
BOASSON
OTHER
Total
Note1 - Nominee account.
Number of
shares:
17,000,837
16,226,543
13,486,167
8,938,913
6,815,874
6,009,440
5,617,732
5,000,000
4,516,727
3,989,247
3,705,324
2,931,086
1,992,380
1,975,093
1,907,399
1,485,000
1,300,000
1,250,000
1,138,000
1,122,846
Ownership
interest:
13.6%
13.0%
10.8%
7.2%
5.5%
4.8%
4.5%
4.0%
3.6%
3.2%
3.0%
2.4%
1.6%
1.6%
1.5%
1.2%
1.0%
1.0%
0.9%
0.9%
18,369,705
124,778,313
14.7%
100.0%
42 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 2011, FLEX LNG had share-based payment
arrangements, which are described below.
Plan
Type of arrangement
Warrant Plan
Equity Based
Date of Grants
19.03.2007 and 07.09.2007
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, 15/07/2011
Warrants and options
granted (less lapses)
as of 31.12.2011
Remaining contractual
life
6,631,455
3,949,500
Average 5 years
Average 5 years
Vesting conditions
25% vest on at shore
completion of the first vessel
from Samsung, 25% vest on at
shore completion of the second
vessel from Samsung and 50%
vest 31.12.2014, subject to
the first two criteria being met.
Expiry date
31/12/2016
2008/9 Allocations:
25% vest on 15/03/2012,
25% vest on 15/03/2013,
25% vest on at shore
completion of the first vessel
from Samsung, and 25%
vest on at shore completion
of the second vessel from
Samsung.
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 first LNG
vessel’s first commercial
cargo of LNG.
2011 Allocations:
50% vest on 20/12/2012 and
50% vest no earlier than 24
months from the FID for the
first vessel.
31/12/2016
The fair value of the options is calculated using the Black-Scholes-Merton option pricing
model. During the year the expected exercise date was updated for the lengthening of
the anticipated vesting periods and the vesting dates on the 2008/9 allocations has been
amended to be in line with 2011 AGM approval.
The warrants contain market conditions in that the underlying has to trade above a
barrier (hurdle) following vesting date in order to be exercised.
The exercise rights as to certain options and warrants are based on vesting criteria linked
to LNGP commercial targets, and the 2011 costs are based on assumptions that these
commercial targets are achievable. Were these targets not to be achievable, it would
have an impact on the income statement in respect of the options and warrants. If the
Alternative Deployment route is followed with Samsung, it is possible that the options
and warrants could undergo certain changes.
43 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 13: Share based payments (continued)
The inputs to the model for options granted to employees in 2011, from the 2008
scheme, are listed below:
Plan – 2008 scheme
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
1.93%
98.72%
-
NOK 3.17
Option
200,000
2.75 years
6.09
9.25
Expected volatility has been based on historical volatilities for FLEX LNG shares and from
similar listed shares.
The total expensed amount in 2011 relating from the share-based payment plan was
$4,265k (2010: $2,367k). The split of the 2011 expense between the warrants and
options was $1,847k and $2,418k. The total expensed amount relating to remaining
options and warrants at 31/12/2011 was $13,655k (2009: $9,390k).
Further details of the plan are as follows:
01.01.11 - 31.12.11
01.01.10 - 31.12.10
Options &
Warrants
Weighted
Average
Exercise
Price
Weighted
Average
Exercise
Price
Warrants
10,716,455 NOK 21.57
9,966,455
NOK 21.90
200,000
0
0
NOK 9.25
0
0
(335,500) NOK 27.93
0
0
909,000
0
0
(159,000)
0
NOK 17.31
0
0
NOK 25.67
0
10,580,955 NOK 19.68
10,716,455
NOK 21.57
0
0
0
0
200,000
NOK 3.17
909,000
NOK 2.16
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
During the year, for options granted in 2008 and 2009, the exercise price was amended
from NOK 37 to NOK 20, following the 2011 ASM approval, this impacted 1,105,000
options.
44 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 13: Share based payments (continued)
Outstanding and vested Warrants as of 31 December 2011 are given in the table below.
Outstanding
Weighted
average
remaining
contractual
Life
5.01
5.01
5.01
5.01
5.01
Outstanding
Options &
Warrants
per
31.12.2011
422,250
6,731,455
1,427,250
2,000,000
10,580,955
Exercise price (NOK)
0.00 – 7.00
7.00 – 15.00
15.00 – 30.00
30.00 – 40.00
Total
Vested
Options &
Warrants
31.12.2011
0
0
0
0
0
Weighted
Average
Exercise
Price NOK
6.50
14.94
21.64
37.00
19.68
Weighted
Average
Exercise
Price
0
0
0
0
0
Vested
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 31/12/2011 1,949,500 of the 2,600,000
options remained in issue. On 25 August 2011 the exercise price was amended for
1,105,000 options from NOK 37 to NOK 20.
Options were granted as follows;
Holder
Employees of the management companies
Hansa LNG Limited
Lapsed - 2009, employees
Employee of the management companies
Lapsed - 2010, employees
Employees of the management companies
Total - 2010
Employee of the management companies
Lapsed - 2011, employees
Total - 2011
Date
2008 grant
2008 grant
2008 grant
2010 grant
2011 grant
Options
1,880,000
2,000,000
(605,000)
60,000
(159,000)
909,000
4,085,000
200,000
(335,500)
3,949,500
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.
45 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 13: Share based payments (continued)
At the 2011 ASM the shareholders authorised the issuance of up to 2,500,000 options to
employees, consultants and contractors of the Company and Group. Mr. Keith Meyer held
a consultancy agreement with the company for services provided prior to becoming a
director. Under this agreement he was entitled to 150,000 options at a strike price of
USD0.01 per share. During the year these options were exercised and shares issued. This
resulted in a P&L charge of $179k for the fair value of the options. The inputs used in the
model for this grant was as follows;
Plan – 2011 scheme
No of options
Expected life
Weighted average share price at grant
date (NOK)
Weighted average exercise price
(NOK)
Annual NOK risk-free rate
Volatility of underlying share
Expected dividends
Fair Value of warrants
Option
150,000
0.15 years
6.50
0.05
2.71%
57.82%
-
NOK 6.45
The remaining 2,350,000 options remained unissued at the yearend.
During the period ended 31 December 2011 FLEX LNG agreed to issue the directors with
shares covering 50% to 100% of their remuneration. The value of the shares is based on
the fair value of the services received of $320k (2010 - $190k). At 31 December 2011
280,761 shares (2010: 118,879 shares) with a value of $144k had not yet been issued to
the directors.
The split of shares issued to director, by way of remuneration, was as follows;
Director
Current directors
D McManus
I Beveridge1
P Fjeld
S Pearl
H Aoki1
E Wakiwaka1
C Pittinger
99,466
64,934
40,669
40,669
64,803
26,779
26,779
2011
2010
0
33,054
33,054
33,054
33,054
0
0
Ex directors
0
K Eisbrenner
K Meyer2
0
52,886
J MacHardy
33,054
J van Hoften
33,054
A Westin
251,210
Total
Note1: These shares are issued to the company they represent rather than the individual.
In addition at 31/12/11 280,761 of these shares has not been issued.
Note2: This excludes the 150,000 options received under a consultancy agreement prior
to becoming a director.
8,158
15,378
16,457
13,890
13,890
431,872
46 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 14: Other financial liabilities
On 11 June 2009 the Group entered into an agreement (the “Principle 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.
Under the Principle Agreement the amount deferred would be repayable with the first
milestone billing after the slow down phase and bear interest at 7% per annum. At 31
December 2011 $4,138k (2010: $3,929k) 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 2011 it
is estimated that $7,058k (2010: $6,870k) in vendor obligations have been incurred by
Samsung on behalf of the Group and a provision has been made for this cost.
Subsequently it was agreed in the 2011 Preliminary Agreement that upon FID for the
Gulf LNG Project, these amounts and the timing of payments would be restructured. The
2011 Preliminary Agreement also covered FEED related costs for the Gulf LNG Project
and costs of $17,973k have been estimated as being incurred by Samsung for the Group
and funded per the Preliminary Agreement by applying funds previously received as
instalments from the Group. While the Preliminary Agreement has lapsed, in the case of
agreement for Alternative Deployment, the Company expects certain amounts paid by
Samsung on behalf of the Group would be offset against paid in instalments. In addition
a $69k (2010: $138k) provision for the property lease liabilities is included, based on a
fair value allocation on the lease acquired by FLEX LNG Management Limited. It is
believed that the carrying values and fair values for the other financial liabilities are the
same.
Current liabilities include a $10.0m short term loan repayable in Q1 2012. In 2012 the
Company notified Samsung to set off the amount against the shipbuilding instalments
paid in by the Company.
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 2011 P&L cost was warrants $1,847k, (2010-
$1,536k) and options $262k, (2010 - $230k).
15.2 Shares held by current members of the Board, as at 31/12/2011
2010
Board Member
0
David McManus
250,000
Ian Beveridge
Philip Fjeld
40,083
467,083
Scott Pearl
0
Hiromichi Aoki
0
Eiji Wakiwaka
0
Christopher Pittinger
757,166
Total
Note: These amounts exclude the 280,761 shares that had not been issued as at
31/12/2011, per note 17.2.
2011
0
250,000
69,615
496,615
0
0
0
816,230
47 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
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 $1.6m (2010: $1.8m).
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 $42m
at 31 December 2011 (2010: $45m). 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. The joint and several
structure is also expected to be covered as part of the negotiations for the Alternative
Deployment. Until 31 January 2012 the agreements excused the continued delay in the
instalments previously due under the original ship building contracts, see also note 17.
16.2 Operating lease commitments, lessee
Subsidiaries have entered into leases on commercial property. The leases have average
remaining lives of 0.8, 0.8 and 6.6 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 2011 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 $493k (2010: $506k).
Group
2011
432
956
383
1,771
Group
2010
438
1,039
619
2,096
16.3 Capital commitments - Samsung
At 31 December 2011, the Group had capital payment commitments of $2,500m (Hulls -
$1,776m units 1-4, Topside - $724m unit 1) on the contracts with Samsung. The
payment profile, based on a 30 June 2010 resumption date, the Samsung 2009 Principle
Agreement and expected design and commissioning at that point would have been: 2010
$143m; 2011 $411m; 2012 $837m; 2013 $404m; and 2014 $705m.
Under the 2011 Preliminary Agreement with Samsung, the parties had agreed that no
payments, including those payable in 2010 and 2011 were due in the FEED phase and
that the intent was to restructure the contracts once FID is taken in relation to the Gulf
LNG Project, whereupon the 2009 Principle Agreement would then become null and void.
At 15 December 2011 a positive FID was not achieved and the waiver was extended to
31 January 2012, at which point the 2011 Preliminary Agreement lapsed and terms of
the 2009 Principle Agreement were reinstated (additional details as to which are set forth
in the 2009 statutory accounts).
48 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 16: Commitments and contingencies (continued)
16.4 Capital commitments – Minza Limited.
Given the lapse of the option to purchase Minza in 2010, there is no remaining
commitment in relation to the previous purchase payments.
Note 17: Subsequent events / after balance sheet date
17.1 Discussions with Samsung Heavy Industries
In 2012 the 2011 Preliminary Agreement lapsed and the terms of the 2009 Principle
Agreement were automatically reinstated. Since January 2012 FLEX LNG and Samsung
have expanded the scope of discussions concerning restructuring of the existing four New
Building contracts to include negotiations for the Alternative Deployment, including to
permit the construction of LNG carrier and/or regassification vessels. These discussions
are ongoing. In addition in 2012 the Company notified Samsung to set off the $10m
short term loan against the shipbuilding instalments paid in by the Company.
17.2 Shares
In February 2012 the Company issued 280,761 additional shares to cover 50% to 100%
of the Director’s remuneration from the ASM to the 2011 yearend.
Note 18: Financing
In the event of a positive FID on the Gulf LNG Project, given the lapse of the 2011
Preliminary Agreement the Company would need to agree a revised instalment profile
with Samsung for the FLNG unit. The Company would then need to raise financing for
both working capital and instalment payments, as necessary, to meet the agreed profile,
including the final instalment.
Any agreement with Samsung on the amount of capital transferred for Alternative
Deployment will depend on a number of factors that are not directly under the control of
the Group (including the commercial terms for the Alternative Deployment, exchange
rates and restructuring costs). In the event that Samsung and FLEX LNG agree to pursue
an Alternative Deployment, the Company expects there to be a number of financing
alternatives for raising working capital and instalment requirements, as required.
There can be no assurance that agreement will be reached with Samsung or that it will
be reached in a manner that is favourable for the Company. In the event that no
agreement is reached with Samsung on restructuring of the LNG Producer contracts
and/or the Alternative Deployment, the Company will need to consider alternative
options open to the Company as well as the timing for raising additional working capital.
Given the lapse of the 2011 Preliminary Agreement with Samsung, the terms of 2009
Principle Agreement are automatically reinstated with the instalment terms as before.
In all cases where the Company requires additional funding, there can be no assurance
that such funds may be raised on terms that are reasonable if at all.
49 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
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.
In the event of FID on the Gulf LNG Project, given the lapse of the 2011 Preliminary
Agreement, the Company would need to agree a revised instalment profile with Samsung
for the FLNG unit. The Company would then need to raise financing for both working
capital, as necessary, and instalment payments to meet the agreed profile, including the
final instalment.
In the event that Samsung and FLEX LNG agree to pursue an Alternative Deployment the
Company expects there to be a number of financing alternatives for raising working
capital and instalment requirements; this will depend, among other things, on the
number of vessels ordered, the debt equity ratio, level of instalments available for
redeployment, economic terms of utilisation and final capital cost. In the meantime, at
current run rates, the Company expects to have sufficient working capital into 2013.
There can be no assurance that agreement will be reached with Samsung or that they
will be reached in a manner that is favorable for the Company. In the event no
agreement is reached with Samsung on restructuring of the LNG Producer contracts
and/or the Alternative Deployment, the Company will need to consider alternative
options open to the Company as well as the timing for raising additional working capital.
In all cases where the Company may require additional funding, there can be no
assurance that such funds may be raised on terms that are reasonable if at all.
In May 2011 the Company issued 11,315,080 shares to IOC and PACLNG at an average
price of NOK 4.59 and thereby raised $9.3m of additional capital. In addition a short term
loan of $10.0m was raised from Samsung and is due for repayment at the end of Q1
2012. In April 2012 the Company notified Samsung to set off the amount against the
shipbuilding instalments paid in by the Company.
Considering the above the Board believes that the going concern assumption currently
remains appropriate for the Group, and expects to have sufficient working capital at
current run rates, into 2013.
The accompanying consolidated financial statements do not include any adjustments that
might result from the outcome of the uncertainties detailed in the report.
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.
50 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 20: Financial risk management objectives and
policies (continued)
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 its
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
billing currencies of relevant vendors. These billings are presently relatively small.
According to Samsung, it has entered into a number of USD/WON and USD/EUR hedges
in relation to the SBC’s and EPCIC contracts. Either upon restructuring the contracts at
FID, following agreement for Alternative Deployment of capital, or before as part of a
negotiated restructuring of the contracts, the hedges would need to be amended to
match the revised cash flow profile. In the meantime the Company and Samsung are
discussing the extent of the Company’s liability for these foreign currency hedges.
Apportionment of such liability has not yet been agreed.
Following FID for a LNGP, or on Alternative Deployment of capital, the Group expects
only to remain exposed to currency risk on change requests and variations, where the
underlying cost is not in USD, alternatively the Company might elect for a multi-currency
contract with Samsung and would then remain exposed to the underlying currency
exposures of the contract.
Additionally the Group incurs overhead costs in GBP and NOK. These exposures are not
currently hedged. 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. In addition, as previously
noted, the Group in 2011 received a short term working capital loan from Samsung,
which had a fixed rate of interest for its loan period.
Liquidity risk
The Group monitors its risk to a shortage of funds using a 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. Additional support was, as
previously noted, provided by Samsung in 2011 in the form of a short term loan and
funding certain EPCIC and FEED liabilities. In 2012 the Company notified Samsung to set
off the amount of the short term loan against the shipbuilding instalments paid in by the
Company.
51 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI
Note 20: Financial risk management objectives and
policies (continued)
Liquidity risk (continued)
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. Samsung provided a short term working
capital loan to the Company in 2011 as previously noted.
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. In the event of FID on the Gulf LNG
Project, given the lapse of the 2011 Preliminary Agreement, the Company would need to
agree a revised instalment profile with Samsung for the FLNG unit. The Company would
then need to raise financing for both working capital and instalment payments, as
necessary, to meet the agreed profile, including the final instalment. In the event that
Samsung and FLEX LNG agree to pursue an Alternative Deployment, the Company
expects there to be a number of financing alternatives for raising working capital and
instalment requirements.
There can be no assurance that agreement will be reached with Samsung or that they
will be reached in a manner that is favourable for the Company. In the event no
agreement is reached with Samsung on restructuring of the LNG Producer contracts
and/or the Alternative Deployment, the Company will need to consider alternative
options open to the Company as well as the timing for raising additional working capital.
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 HSBC,
Lloyds TSB and Barclays. Samsung has previously provided irrevocable refund guarantee
for the prepayments made by the Group, in the case of non delivery of the vessels, as
covered in note 8.
Operational risk
Currently the Group has not reached FID for any of the FLEX LNG vessels or for the
Alternative Deployment option. Operational risks mainly relate to expenditure being
higher than forecast, risks to the environment and risks to the safety for staff. At a
commercial level it also includes the settlement of the contract restructure with Samsung
on reasonable terms; agreeing the level of remaining capital with Samsung on
reasonable terms; achieving FID on the Gulf LNG Project, or agreement to the Alternative
Deployment and the economics of such Alternative Deployment; the contractual
consequences if this does not occur; potential Samsung claims under its agreement with
the Company; as it relates to FID on the Gulf LNG Project, if any, the political situation in
PNG; as it relates to FID on the Gulf LNG Project, if any, any IOC/PACLNG contractual
arrangements being on economically viable terms; obtaining finance and working capital
at reasonable terms; and being able to secure employment contracts on reasonable
terms for alternative vessels constructed by Samsung.
52 Registered Address: Craigmuir Chambers, PO Box 71, Road Town, Tortola, BVI