FLNG

Business Context and Reporting Period

Company: Flex LNG Ltd. (NYSE: FLNG)
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2025
Business Overview: Flex LNG is a growth-oriented owner and operator of fuel-efficient, fifth-generation LNG carriers. As of December 31, 2025, the Company operated a fleet of 13 LNG carriers. The Company is incorporated in Bermuda and listed exclusively on the New York Stock Exchange following its delisting from the Oslo Stock Exchange in September 2025.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Vessel operating revenues decreased by $8.7 million (2.4%) to $347.6 million. This was primarily driven by lower revenue from vessels Flex Constellation and Flex Artemis operating in the spot market at lower rates following redelivery from long-term contracts, and increased offhire days due to four scheduled drydockings in 2025 compared to two in 2024.
• Profitability Decrease: Net income fell by $42.9 million (36.4%) to $74.8 million. Key factors included a $30.3 million swing in derivative results (from a $22.8 million gain in 2024 to a $7.4 million loss in 2025) and increased extinguishment costs of long-term debt ($4.1 million vs. $0.6 million).
• Interest Expense Reduction: Interest expense decreased by $13.0 million to $92.6 million, primarily due to a decrease in floating interest rates.
• Dividend Payments: The Company paid total dividends of $162.3 million in 2025, consistent with the $161.7 million paid in 2024.

Guidance, Outlook, and Risks

Management Commentary and Outlook: The Company expects to continue focusing on the operation of long-term charters while exploring accretive growth opportunities. As of February 27, 2026, 78.0% of available calendar days for the remainder of 2026 were fixed under period charters. However, two vessels were redelivered from long-term contracts in early 2026, and one is scheduled for redelivery in March 2026, exposing these assets to spot market volatility.

Key Risks and Contingencies:

• Market Volatility: The LNG shipping market experienced structural oversupply in 2025, with spot rates averaging $37,000 per day, significantly lower than 2024 levels. A decline in spot rates could materially affect revenues for vessels not on long-term charters.
• Geopolitical Instability: Conflicts in the Middle East (Israel-Iran, Houthi attacks) and the Russia-Ukraine war continue to disrupt shipping routes (e.g., Red Sea, Suez Canal), increasing voyage times and costs. New U.S. tariffs and trade tensions with China pose additional risks to global trade volumes.
• Regulatory Compliance: The Company faces increasing costs and compliance requirements related to the EU Emissions Trading System (EU ETS) and FuelEU Maritime regulations, which impact carbon intensity and require the purchase of emission allowances.
• Customer Concentration: For 2025, the top four customers accounted for 98.5% of consolidated revenues, creating significant counterparty risk.

Investor Verification Checklist

• Charter Expirations: Verify the re-chartering status and rates for Flex Aurora (expiring Q1 2026), Flex Artemis, and Flex Volunteer currently in the spot market.
• Debt Covenants: Confirm continued compliance with financial covenants, specifically the book equity ratio (minimum 0.20:1.0) and collateral maintenance tests, given the high leverage ($1.86 billion debt).
• Derivative Exposure: Assess the impact of the $7.4 million loss on derivatives and the Company's hedging strategy (fixed rate on $775 million notional principal) against future SOFR fluctuations.
• EU ETS Costs: Monitor the actual cost of EU Emission Allowances (EUAs) and the ability to pass these costs to charterers, as EUA expenses increased to $7.8 million in 2025.
• Dividend Sustainability: Evaluate the sustainability of the $0.75 per share quarterly dividend given the decline in net income and the reliance on Contributed Surplus for distributions.