FLEX LNG Announces Q2 2010 Financial Results (UK)

FLEX LNG is pleased to announce that the Q2 2010 financial reports were approved by the Board of Directors on 25 August 2010.

During the second quarter and first half of 2010 the FLEX LNG group of companies (“the Group”) has continued to develop what it expects could be amongst the world’s first LNG Producers.

In the quarter costs of $2.1m ($5.1m) were capitalised on the four units and over the half year $8.8m ($15.4m).

The cash balances at 30 June were $16.9m ($23.6m) with $3.4m ($10.8m) net outflow in the quarter and $8.8m ($25.9m) in the first half. In the six months in 2010 the operating cash outflow was $3.1m (principally the operating loss and working capital movements); investing activities outflow $9.0m (capitalised asset costs); and financing activities inflow $3.3m (proceeds from deferred payments to Samsung).

The loss before tax was $2.1m ($3.6m) in the quarter and $4.7m ($5.2m) in the first half, with a year to date retained net loss of $4.8m ($5.3m). 2010 has benefited from lower operating costs and a FX revaluation gain on its non USD denominated liabilities.

Outlook

The Group continues to focus on securing employment for the LNG Producers and is discussing alternative commercial arrangements for the employment, such as integrated projects consisting of gas supply contracts with oil and gas companies, product handling agreements for the services of the LNG Producers, and LNG sales and purchase contracts with LNG off-takers as well as more traditional charter arrangements.

The Group is currently pursuing a number of opportunities. In 2010 the Group has announced that it is in advanced talks with an Asian National Oil Company (NOC) to join a floating liquefaction project that would monetise gas resources controlled by the NOC in Australia.

The proposed project would be developed by a JV where FLEX LNG would join together with one or more technical and commercial partners. Subsequently the Group signed a Memorandum of Understanding (MoU) with SAIPEM for exclusive cooperation towards the development of this project.

In June 2009 FLEX Petroleum Limited, a wholly owned subsidiary of FLEX LNG, entered into an option agreement setting out the terms to acquire control of Jersey-based Minza Oil & Gas Limited (“Minza”), additional details in note 5.

In Q2 2010 the seismic surveys and interpretation were completed for the “Anita” and “Wombat” structures. Preliminary results support a significant increase in the estimated gas resources of the main Chuditch structure and surrounding structures.

Compared to the previous resource estimates the most recent analysis shows a potential increase in the Gas Initially In Place (GIIP) of up to 30-40%. This would bring the estimated GIIP figure for the Chuditch Main, Chuditch West and Wombat structures to a combined total of more than 3 tcf.

In 2010 an option period extension was signed to the original option agreement allowing more time to agree terms with a development partner.

The Company continues negotiations with potential partners and financing sources to fund and to allow the Minza option to be exercised, prior to its expiry.

Financing and Risks

The Company acknowledges the current challenging fund raising environment it faces and the impact that this has on the ability of the Group to finance its funding requirement.

Following the raising of $10m of additional capital as part of the listing on Oslo Axess on 30 October 2009, the Company expects to have sufficient financial resources to enable it to continue trading and to meet its payment obligations until the next hull payments are due to be made to Samsung in November 2010.

Under the Principle Agreement with Samsung the resumption notice had to be given by 31 May 2010.

Since the Company has currently not issued any resumption notice yet, Samsung has a contractual right to cancel all the four shipbuilding contracts as well as the EPCIC contract for M-FLEX 1.

Samsung has informed FLEX LNG in writing that it will work with the Group with the aim of amending the Principle Agreement.

In addition Samsung has informed FLEX LNG that presently and dependent on commercial progress and cost impact Samsung has no intention of exercising its right of termination under the Principle Agreement and acknowledges the need to defer the resumption date.

The Group aims to (a) conclude a final investment decision (FID) for at least one of the LNG Producers (which the Company believes should enable it to raise additional finance), or (b) raise additional working capital and rearrange its obligations to allow the Company more time to achieve (a).

These steps would allow the Group to finance its operations over the year. The Board believes the going concern position and risks remains as described in the 2009 statutory accounts and in the quarterly accounts.

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Source: FLEX LNG, August 26, 2010