Teekay’s Kenneth Hvid Talks Diversification [INTERVIEW]

During Marine Money Week 2012, gCaptain’s Rob Almeida met up with Kenneth Hvid, Chief Strategy Officer and Executive Vice President of Teekay Corporation. Here’s what he had to say:

With the creating of Teekay’s daughter companies, how did that change the identity of Teekay?  How do you really define Teekay Group from an investment standpoint?

I think it changed us in the sense that we used to have one company, and everything was mixed into it, and we then started to look at different segments.  As we were doing that, a couple of things happened.  We became more complex because we were no longer a pure tanker company, we were a shuttle tanker company, LNG, and an FPSO company as well, all mixed together.

So investors looked at us and asked the question, “well what are you actually doing?”

And we had to explain all the different strategies.  Which is all good, but sometimes you have investors that say, “well, I really like your tanker business, but I don’t want to follow you into shuttle tankers.”  So that scenario created some challenges.

The other contributing scenario was found in our first daughter company, the gas business.  Every time you order an LNG carrier, it’s about a $200 million expenditure, so we did an $800 million acquisition, a bit more actually, and we had 3 charters, and very quickly we had spent nearly $1.5 billion just establishing ourselves in that segment.  It was very clear that if we were to grow at the pace the industry was growing, then we needed another, vehicle with which we could go out and raise equity.

That’s when we decided to create a more attractive vehicle Teekay LNG which had a different investor base, a different profile, for people who really wanted to invest in LNG.   We then looked around at the different structures and the MLP or master limited partnership structure was the one we chose.  We used this because in this structure, you still maintain control over the company, even though we have less than 50% ownership in the company.

Because as a partnership, you control the company from a management point of view.  You obviously have a lot of unit holders, but they don’t have any voting rights.

So what you need to do is to make sure you serve those unit holders, and that’s what we do via stabilizing the cash flows, and paying dividends, and creating something that’s very stable, consistent, and attractive in today’s market.

So Teekay (TK:NYSE) is a play on all three of your daughter companies?

In some ways you can say that, but there are a couple ways of looking at it.

If you want to have the easy, single investment on the total buildout of the energy infrastruture, you would definitely look at TK.

The other way to look it is that we are transforming TK into something that looks a bit like a holding company, where all the long term assets would be owned by the daughter companies, and short term assets would be owned at the parent-level.

So what you would actually do would be to look at the dividend streams your creating at the daughter levels.  In this way, you’ve stabilized the business and created a certainty of the cash flow dividend stream that is going to flow upstairs to the parent.

That’s what is attracting a lot of new investors.  They are seeing the valuations of those cash flow streams could be a lot higher.

What does Teekay, the parent company own in regards to assets?

On the standalone basis, Teekay owns 4 conventional tankers, we own 7 FPSOs that are in different stages of being dropped down, and then of course the shares of the units, and GPs of the daughters.

And the shuttle tankers you are referring to, are those the ones that Teekay is looking to convert into dynamically positioned wind farm vessels?

Yes.  So you have your shuttle tankers and conventional tankers, both of which have been trading for 20 years.  In most cases you start to see discrimination from the charterers because they are “old”, but they are still good.

Some of them we’ll sell, and others we have earmarked for conversion into FSOs, FPSOs (possibly), and also the possibility of wind farm installation vessels.

From a commercial risk standpoint, how much of a wildcard is Brazil these days?  

Our experience has been good in Brazil.  We have over $2 billion in assets in Brazil, we have invested a lot in our Brazilian organization, and we are training officers and seafarers locally, we have Brazilian partnerships as well.

One of the challenges always with a fast growing market like Brazil is inflation.  I think that’s one of the main things that we are trying to safeguard ourselves against, but you need to have the right contracts to minimize your exposure.

When you took over the Voyageur Spirit FPSO, how did you get people to manage that?  Was that a new sector for your business at the time it was acquired?

No, not really.  We bought a company back in 2006 called Petrojarl, now Teekay Petrojarl.  They had 4 FPSOs when they started out, and they were all operating.  This gave us the largest operation in the North Sea of any FPSO operator, and Petrojarl had a very long track record that went about 30 years back.

That is how Teekay has historically done business.  If we’ve ventured into new markets where we needed a base to get started, we’ve never been afraid of buying that platform, but there has always been a purpose to escape.  So we’ve gone from 4 FPSOs in 2006, to today where we have nine FPSOs in our entities.

When we went in and bought the Voyageur project, that was really about having the skillset.

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Teekay Corporation – Infographic

Here’s a look at Teekay’s corporate structure, business and unique investment opportunities.