Teekay CEO Peter Evensen: Ski Bum Turned Ship Finance Wizard

At the Connecticut Maritime Association conference last week in Stamford, Connecticut, I sat down with Peter Evensen, President and CEO of Vancouver-based Teekay Corporation (NYSE:TK). 

RA: Where are you from originally Peter?

PE: I’m from originally outside Washington, DC. in Arlington, Virginia.

I can never really tell people I’m a Virginian because they then say, “oh, well that’s Arlington.”  And then you can never say you’re from Washington, DC.

Are you from the area?

RA: I live in the Mt. Vernon Square area.

PE: Oh really?  I didn’t know that.  I’m a Washington Redskins season ticket holder.

RA: Do you ever get to go to the games?

PE: (Laughing) Not that many.  I was there for the Dallas – Washington game, we stood the whole time at FedEx Stadium.  It was awesome.  You know, we hadn’t won in however long, it was awesome.

But yea, it isn’t good to live in Connecticut, work in Vancouver, and be a Redskins fan.  That isn’t great.

So I grew up in Washington, DC, I’m half Norwegian and half American.  When I graduated from school I said I was given two great gifts in life, one is graduating debt free, and the other is not having to fight in war.

RA:  Where did you go to school?

PE:  Amherst College.

So, I went to Norway worked in Norway and Denmark for a year and a half, and then I was a ski bum (at Alta), and then figured out I had it all wrong when it came to going to Norway.  I had to go back to America and get a job where they would send me to Norway.

So that’s what I did, I went back and I joined a bank.

RA: Did it beat being a ski bum?

PE: Yea (laughing).  Although we did get 60 feet of snow that year.

RA: That’s hard to beat.

PE: Skied over 95 days that year.  So then I went to Norway, worked there for 4 years, started to concentrate on shipping, because I really liked the people, and then I went to London for eight years, then to Connecticut.

In 2003 I was out pitching some financial solutions to Teekay.  Bjorn Moller the CEO asked if I had ever thought about being the CFO of Teekay and so I thought about it.

Actually, I had just came back from a heli-skiing trip, I was at the CMH, the Canadian Mountain Holidays and so I said to myself, “I have to take this job.”

And believe it or not, it took me another four or five years to get back heli-skiing because I got so busy at Teekay!

But I really like Teekay because it operates under a team concept and a lot of shipping companies are very hierarchical and Teekay is very much based on team-based concept.  So, I really enjoyed that.

We’ve gone on and created these daughter companies as I’m sure you’re aware of.  People like to copy that, and there are good reasons behind that which is to source low cost capital and it’s a pure-play for investors.  Then Bjorn decided to retire about 2.5 years ago and I got the nod.

RA:  Looking back at your career, did you have a mentor?

PE: Yeah, I think what really prepared me was that as a banker, I got to get to know a lot of shipowners.  I think the biggest was a Norwegian named Kristian Gerhard Jebsen.  He controlled Gearbulk and some OBOs, and I used to go all around the world with him raising money, doing all his deals, and he taught me a lot about shipping.

RA: Last year at Marine Money in New York, there was talk between the differences of a publicly traded shipping company and a privately-held one.

PE:  I think what the shipping and the investors universe are finding is that not all shipping companies are the same.  People had a sort of universal view sometimes when I talked to them in 2005, 2006, and 2007 that we were a play on China.  And, it was hard assets and you had inflation, and you had rising rates.

Now, people are understanding that shipping and offshore models are different.

Teekay is very much a play on the build-out of the world’s energy infrastructure, but how we make our money is different.  We’re making our money off the general partner interests rather than owning assets, and we develop a whole bunch of projects.

We’ve introduced a lot more technology into shipping and offshore than we’ve seen.  When I took over and was talking with the Teekay staff, I told them that I believed we would see more change in shipping in the next 10 years than we’ve seen in the last 25.  In the last 25, we basically just made ships bigger.

While that drives down unit cost, what we’re seeing are investments in fuel-saving technology, Remora Hi-Load, we just ordered a pair of next generation LNG carriers with the ME-GI engine, which MAN is talking about.  And we were the first in doing that.

It’s more than just being an “eco-ship.”

We’ve done a lot of tank-testing on this and so we’ve done it on LNGs and I anticipate we’ll order a new design of tankers going forward, but we’ve done a lot of work on what is the right hull form, propeller, and engine.

And so, I would say that how people are making their money is different, and investors are understanding that and pricing accordingly.

RA: The Petrojarl Knarr FPSO has a 10 year contract with BG and it’s not out of the shipyard yet.  That’s pretty good news for you.

PE:  Which part?  The 10 year contract or the fact it’s not out of the shipyard yet?  I would love it out of the shipyard!

RA: How much more expansion do you see for Teekay in the FPSO market?

PE:  A lot.  We’ve invested 3.5 billion, but we are looking beyond that.  We have front end engineering studies going on for high profile FPSO solutions that we’re competing on.  We’re already focusing in on 2016 from a project standpoint.

RA:  Looking at the growth of shale gas in the US as production comes on line into 2016.  How do your operations start to evolve?

PE: The two LNG ships that we just ordered will be delivered in 2016 and will be the biggest LNG carriers to transit through the new Panama canal, which is coming in 2014.  These ships are 173k cbm, compared to Golar LNG which are at 160k and GasLog at 155k.

RA:  What about some of the more stationary vessels like FSRUs?

PE:  We have an ownership stake in one with Exmar right now, and we are competing on them right now.  Again, you see a change in technology.  First, it was the conversions of 125 – 135k cubic ships, but you can’t show up with a 173k cubic against a storage unit that can only take two-thirds of that.  So, they’ve gotten bigger, and people aren’t interested in conversions now, and it’s on to new builds.

We haven’t speculatively ordered any FSRUs, but we’re competing on projects that will need them.  I’m sure we’ll be successful, but we don’t just look at raw risk, we measure it up against risk/return.  There’s a lot of time that we spend figuring out the correlation coefficients between our various projects because you can’t just look at a project by itself, you have to look at how it fits as part of a portfolio.

So, one of the things Teekay has done is to look at what is the business model here?  Are we doing build-to-suit on LNG? Are we spec-ordering? What is our business model here?

This goes back to what I said earlier… Investors and financiers understand that people’s business models are as important as what industry they are in.

RA:  Does Teekay Parent own any assets right now?

PE:  Yes, we do.  We own four conventional tankers.

RA:  Are you looking to change that?

PE:  Ultimately we will.  We are in the process of dropping down assets, and we have made public that we are on our way to becoming net debt-free.

We were approaching this status at the end of 2011, and then we saw this great opportunity with Sevan, so then we levered up for that and now we are finishing up those assets and we’re dropping them down.  So that actually helps the growth of the daughters, which in turn, helps the growth of Teekay.

RA: You have 8 LPG ships being built at the moment.  What’s the market look like for LPG?

PE:  Just like you’re going to see increased exports of US natural gas in the coming years, you’re going to see increased exports of LPG and its derivatives.  Because it’s just a cheaper feed stock price.  Everyone loves to talk about these big refineries, and how efficient they are, but the real kicker is, “what’s your feed stock price?”

So, I think the petrochemical and other export markets in the US will be beneficiaries of low nat gas price.

Regarding the LPG newbuildings that we are working with Exmar on…

First we looked at Exmar and said, we can’t do it as well as they do, so let’s combine forces.  We have a good relationship with them, I have a good relationship with Nicolas Saverys, and so we thought this is a great chance to come together.

I think people are already acknowledging it because we went out to go refinance the bank facility, and it was already well oversubscribed.  And so, part of the whole deal that we talked about with them was, let’s renew the fleet.  So now we’ve done that.

RA: You have a VLCC that’s scheduled to be delivered this year.

PE:  Yes, that’s also a joint venture.  This joint venture partner is with Wah Kwong Shipping in Hong Kong, and they actually run it.  It’s a Chinese-built ship and it’s going on to a Chinese-owned charter for 5 years.

RA: Is there any chance Teekay can get into the Jones Act market?

PE:  We are constrained by a max 25% ownership stake in a Jones Act, so I don’t think that’s interesting to us.

RA:  What about Skaugen PetroTrans?

PE:  We own 50% of Skaugen PetroTrans, and just like the VLCC we are a passive partner in that venture.

RA:  I.M. Skaugen came out with a statement in their 2012 annual report saying:

“SPT Ltd needs more equity in order to continue to engage itself in this business. No decision has been made by IMS as to whether they will continue to support SPT Ltd. (through PTH Ltd) with capital injections or whether it will discontinue this business entity.”

PE: Look what happened, the US is importing less oil, so the full service ship-to-ship transfer in the Gulf of Mexico, is a much-reduced business.  If you look quite carefully at OSG’s financials they admitted they were losing money in their lightering business.

So, yea, let’s just call it what it is.

RA: Switching gears a bit, let’s talk ship security.  Do a lot of your ships use embarked security teams?

PE: We do a risk analysis for each voyage going through a sensitive area and we determine what sort of security measures we’re going to need, including armed guards.    So we obviously don’t say which ships have them, but yes, depending on the voyage, the type of the ship, the speed of the ship, and the area, we will employ armed guards.

RA:  Do the ship’s crew feel that these teams are an added value for them?  What has the response been like?

PE: I think they are more interested in the route that we choose to go because we actually spend more money to route up close to India and go across closer to Yemen, than it does to cut straight across.  So it costs many more days of fuel, but they are far more interested to know that we have their welfare as our primary concern.

And, let’s call it what it is… it’s kidnapping.  It’s not piracy.

Unfortunately the places where you have to be conscious of security are growing.

RA:  How have the teams you have used in the past worked out for you? Any feedback?  There are a lot of security companies out there who are trying to gain some perspective on this.

PE:  I think the companies we do business with are top-notch.  Obviously there have been a lot of people who have gone into the business.  I get a lot of solicitations, but as usual we vet them out just as we would with any supplier.  Knock-on-wood, it’s been good.

I just want to emphasize that the routing of the ship is just as important.  Everyone focuses on the armed guards, but there’s a whole other risk analysis that goes into how you route.  There are many considerations and when you see ships that have been taken, there’s probably something that has been overlooked.

RA:  What about insurance premiums?  How does using PMSCs affect that?

PE:  It doesn’t affect it at all.