Executive Summary / Key Takeaways

• FLEX LNG operates a modern, fuel-efficient fleet of 13 LNG carriers with a robust long-term charter backlog of 56 years (potentially 85 years with options), providing significant earnings visibility and insulation from short-term market volatility.
• Strategic balance sheet optimization, including recent refinancings for Flex Courageous, Flex Constellation, and Flex Resolute, has fortified liquidity with $412.7 million in cash as of June 30, 2025, and extended debt maturities beyond 2029.
• The company maintains a strong commitment to shareholder returns, declaring a consistent $0.75 per share quarterly dividend, translating to a 12% dividend yield, supported by robust cash flow and financial flexibility.
• FLEX LNG's advanced MEGI and X-DF propulsion technology offers superior fuel efficiency and lower emissions, providing a critical competitive edge under new environmental regulations like EU ETS and FuelEU Maritime.
• While the LNG shipping market faces short-term oversupply and low spot rates, long-term demand growth, driven by new U.S. and Qatari export projects and the accelerated scrapping of older, inefficient tonnage, presents a compelling future for FLEX LNG's modern fleet.

Setting the Scene: A Modern Fleet in a Dynamic Market

FLEX LNG Ltd. (NYSE:FLNG) stands as a specialized owner and operator in the global seaborne transportation of liquefied natural gas (LNG), commanding a fleet of thirteen modern, fuel-efficient carriers. The company's strategic foundation, built since its incorporation in 2006 and re-domiciliation to Bermuda in 2017, centers on securing long-term charters to ensure stable revenue streams and mitigate the inherent volatility of the shipping industry. This approach has been particularly critical in an LNG market characterized by fluctuating spot rates and evolving global energy dynamics.

The LNG trade experienced approximately 2% growth from January to July 2025, with major contributions from the U.S., Qatar, and Australia, collectively representing over 62% of total LNG trades. U.S. LNG exports surged by more than 20% year-over-year, driven by the ramp-up of Venture Global's Plaquemines and the expansion of Cheniere (LNG)'s Corpus Christi. This growth, however, is set against a backdrop of short-term market oversupply due to a significant newbuilding orderbook, particularly concentrated in 2026 and 2027. Despite these near-term challenges, the long-term outlook for LNG demand remains robust, with industry forecasts projecting a rise of around 60% by 2040, primarily fueled by economic growth in Asia, emissions reductions in heavy industry and transport, and the impact of artificial intelligence.

Technological Edge: Efficiency and Environmental Leadership

FLEX LNG's competitive advantage is deeply rooted in its state-of-the-art, fifth-generation fleet, primarily comprising vessels equipped with M-type Electronically Controlled Gas Injection (MEGI) and Generation X Dual Fuel (X-DF) propulsion systems. These two-stroke engines represent a significant leap in maritime technology, offering superior fuel efficiency and a reduced carbon footprint compared to older steam turbine and four-stroke propelled ships. Specifically, MEGI vessels generate negligible methane slip during gas operation, making it the most environmentally-friendly technology available, with a reduction of greenhouse gas emissions, including methane slip, found to be 22% lower compared to fuel oil.

The tangible benefits of this technology are multifaceted and directly impact FLEX LNG's financial performance and market positioning. The enhanced fuel efficiency translates into lower operating costs for charterers, making FLEX LNG's vessels highly attractive. Furthermore, the low-emission profile of MEGI and X-DF ships provides a critical advantage under increasingly stringent environmental regulations. For instance, under the EU Emission Trading System (EU ETS), FLEX LNG's MEGI and X-DF vessels incur a lower daily cost of approximately $4,600, compared to $7,200 for steam ships and $5,600 for tri-fuel vessels. The FuelEU Maritime regulation, effective January 2025, further benefits FLEX LNG's fleet, as its cleaner-burning LNG fuel and minimal methane slip (especially for MEGI) are expected to not only meet GHG intensity limits but also create significant compliance balance surplus into the 2030s. This technological differentiation acts as a significant competitive moat, fostering stronger customer loyalty and potentially enabling better pricing power in long-term contracts.

Strategic Pillars: Backlog, Balance Sheet, and Shareholder Returns

FLEX LNG's overarching strategy is anchored in long-term charter agreements, which currently provide a firm contract backlog of 56 years, potentially extending to 85 years with charterer options. This strategy has proven instrumental in insulating the company from the recent slump in spot market freight rates, which saw modern tonnage rates as low as $10,000 per day and steam tonnage at effectively zero in late 2024. The company's proactive approach to securing these contracts, exemplified by the amendment and extension of Flex Resolute and Flex Courageous until at least 2032 (with options to 2039) and the 15-year charter for Flex Constellation commencing in 2026, underscores its commitment to earnings visibility.

Complementing its chartering strategy, FLEX LNG has diligently pursued a "Balance Sheet Optimization Program 3.0." This initiative has systematically enhanced liquidity and extended debt maturities. Recent achievements include the May 2025 sale and leaseback of Flex Courageous for $175 million, yielding $43 million in net cash proceeds. Further refinancings for Flex Constellation ($180 million bank facility) and Flex Resolute (Japanese JOLCO lease) were announced in July and August 2025, respectively, expected to add an additional $90 million to the cash balance in Q3 2025. These actions are fortifying the company's "fortress balance sheet" and pushing debt maturities beyond 2029. As of June 30, 2025, FLEX LNG had $412.7 million in cash and cash equivalents and restricted cash.

FLEX LNG is committed to a shareholder-friendly dividend policy, aiming to distribute surplus cash to shareholders. The Board declared a $0.75 per share quarterly dividend for Q2 2025, resulting in a last 12 months dividend of $3 per share, implying a dividend yield of 12% on a share price of $25. This consistent payout is supported by the company's strong cash flow and extensive contract backlog.

Competitive Arena: Differentiated Fleet in a Crowded Market

In the highly capital-intensive LNG shipping sector, FLEX LNG competes with established players such as Golar LNG (GLNG), Dynagas LNG Partners (DLNG), Teekay LNG Partners, and Excelerate Energy (EE). FLEX LNG's fleet of MEGI and X-DF vessels offers comparable, and in some cases superior, technological capabilities to its rivals, particularly in fuel efficiency and emissions profile. While Golar LNG often leads in innovative integrated LNG solutions like floating production and regasification, FLEX LNG's strength lies in its specialized, high-performance vessels and robust operational execution in core LNG transportation. FLEX LNG's gross profit margin (TTM) of 56.63% and EBITDA margin (TTM) of 76.72% demonstrate strong operational efficiency, positioning it competitively against peers like Dynagas LNG Partners, which also focuses on modern carriers. However, FLEX LNG's strategic focus on pure transportation may limit diversification compared to Excelerate Energy's bundled services, which could yield higher margins in integrated deals.

The broader market dynamics present both opportunities and challenges. The LNG trade grew approximately 2% from January to July 2025, with significant contributions from the U.S., Qatar, and Australia. New Final Investment Decisions (FIDs) for U.S. LNG projects, such as Cheniere Corpus Christi Train 8 and 9, Venture Global CP2, and Woodside (WDS)'s Louisiana LNG, signal a strong long-term supply outlook, with first LNG expected from 2028-2029. This anticipated wave of new volumes is expected to absorb significant tonnage.

However, the short-term market remains soft, with approximately 300 LNG vessels scheduled for delivery over the next few years, concentrated in 2026 and 2027. While most newbuilds are already tied to long-term projects (e.g., Qatar's fleet renewal), a portion remains uncommitted. This influx of new tonnage, coupled with reduced ton-miles due to U.S. cargoes increasingly flowing to Europe, has contributed to lower spot rates. A critical factor for market rebalancing is the accelerated scrapping of older, inefficient steam turbine vessels. Currently, 64 ships (9% of the active fleet) are effectively idle, and 8 vessels have been scrapped so far in 2025, matching the total for 2024. The falling age profile of scrapped ships (now averaging 25 years) and the uneconomical operating costs for steam tonnage (spot rates at effectively zero) suggest a significant uptick in scrapping activity, which is crucial for market equilibrium by 2027-2028.

Financial Performance and Outlook

For the six months ended June 30, 2025, FLEX LNG reported vessel operating revenues of $174.42 million, a slight decrease from $174.93 million in the same period of 2024. This modest dip was primarily attributed to softer spot market rates impacting the Flex Artemis' variable hire contract and a lower rate for Flex Constellation in the short-term market, partially offset by positive revenue effects from extended charters for Flex Resolute and Flex Courageous, and $3.6 million in EU ETS-related revenue. The Time Charter Equivalent (TCE) per day for Q2 2025 stood at $72,000, down from $73,900 in Q1 2025.

Operating expenses saw a controlled increase, with vessel operating expenses rising by $1.8 million to $36.3 million in H1 2025 due to higher crew change costs and auxiliary engine maintenance. Voyage expenses increased by $3.7 million to $5 million, largely due to the $3.6 million accrual for EU ETS obligations. The company's interest expense notably decreased by $7.4 million to $46.4 million in H1 2025, benefiting from a decline in the average 3-month SOFR and strategic debt refinancings in late 2024. However, a net loss on derivatives of $8.6 million (comprising $16.7 million unrealized loss and $8 million realized gain) impacted net income. Adjusted net income for Q2 2025 was $24.8 million, or $0.46 per share, after adjusting for unrealized derivative losses and extinguishment costs.

Liquidity remains robust, with cash and cash equivalents totaling $412.7 million as of June 30, 2025. Operating activities generated $67.1 million in cash during H1 2025, though this was lower than the prior year due to advanced payments for scheduled drydockings. The company's aggressive balance sheet optimization has been a key driver of its financial flexibility, with $850 million in aggregate notional principal amount of interest rate swaps fixed at a weighted average rate of 2.33% and a 3-year duration, effectively hedging against interest rate volatility.

FLEX LNG has reaffirmed its full-year 2025 guidance, projecting revenues between $340 million and $360 million, a TCE per day of $72,000 to $77,000, and adjusted EBITDA of $250 million to $270 million. This guidance reflects the company's strong contract backlog, which is expected to largely offset the impact of 14.5% spot market exposure for the remainder of 2025, primarily from Flex Artemis and Flex Constellation. The company has factored in the scheduled drydocking of four vessels in 2025 (up from two in 2024), with two already completed below the guided 20 days off-hire. Average drydocking costs are estimated at $5.7 million per vessel, slightly above previous estimates due to higher European costs.

Management maintains a cautious short-term outlook on the LNG market, acknowledging the current oversupply of tonnage and low spot rates. However, they remain "bullish on the long-term LNG story," anticipating a significant rebalancing of the market from 2027-2028 onwards. This long-term optimism is fueled by the expected ramp-up of new U.S. and Qatari LNG export projects and the accelerated scrapping of older, less efficient vessels. The company's strategy is to leverage its robust backlog and financial strength to bridge the current soft market, positioning its modern fleet to capitalize on improved term rates in the future.

Risks and Challenges

Despite its strong positioning, FLEX LNG faces several risks. The primary challenge remains the volatility of the LNG shipping market, particularly in the spot and short-term charter segments. While the company's long-term contracts provide significant insulation, its 14.5% spot exposure for the remainder of 2025 means earnings can be impacted by prevailing low rates. Geopolitical tensions, including the war in Ukraine, conflicts in the Middle East, and Houthi attacks in the Red Sea, pose risks to shipping routes and global trade stability. Furthermore, U.S.-China trade tensions, including the imposition of tariffs on U.S. LNG, could alter trade flows and demand patterns, potentially affecting ton-miles and charter opportunities.

Regulatory risks are also prominent. While FLEX LNG's modern fleet is well-suited for environmental regulations like EU ETS and FuelEU Maritime, the complexity and potential for new, unforeseen rules could introduce additional compliance costs or operational complexities. Interest rate risk, though partially mitigated by extensive hedging, remains a factor given the company's floating-rate debt. Inflationary pressures could also increase operating, voyage, and administrative costs, impacting profitability.

Conclusion

FLEX LNG presents a compelling investment case, underpinned by its strategic focus on long-term charters, a technologically advanced and fuel-efficient fleet, and a meticulously optimized balance sheet. The company's ability to generate stable cash flows, even amidst short-term market headwinds, is a direct testament to its robust contract backlog and proactive financial management. Its commitment to shareholder returns, evidenced by a consistent dividend yield, is firmly supported by substantial liquidity and a clear path to sustained profitability.

Looking ahead, while the immediate LNG shipping market faces an oversupply of tonnage and low spot rates, FLEX LNG is strategically positioned to capitalize on the anticipated long-term growth in LNG demand, driven by new export projects and the inevitable scrapping of older, less efficient vessels. The company's technological leadership, particularly its MEGI and X-DF propulsion systems, provides a durable competitive advantage in an increasingly environmentally conscious industry. Investors seeking a high-yield opportunity with strong fundamentals and exposure to the long-term growth of the global LNG trade will find FLEX LNG a resilient and strategically sound choice.