Ep805: Oeystein Kalleklev – Shipping’s Brutal Truth: Adapt or Die

Andrew Stotz 00:02
Hello fellow risk takers, and welcome to my worst investment ever. Stories of loss. To keep you winning in our community, we know that to win in investing, you must take risk, but to win big, you've got to reduce it. Ladies and gentlemen, I'm on a mission to help 1 million people reduce risk in their lives, and I want to thank all my guests from Norway for joining the mission, fellow risk takers, this is your worst podcast host, Andrew Stotz from a Stotz Academy, and I'm here with featured guests. Austin Cala Cleve, Austin, are you ready to join the mission?

Oeystein Kalleklev 00:38
Yeah. Thanks for inviting Andrew. Yeah, in fact,

Andrew Stotz 00:41
I was just looking at our email communication. It's been a long time trying to get you on this show. So

Oeystein Kalleklev 00:48
I appreciate been a bit a bit busy lately. But no, I'm free, so now I could take the opportunity. Yeah, yeah. My, my some good deals and some bad deals. Maybe I

Andrew Stotz 00:58
think that we're going to have some fun going through it. So let me just briefly introduce you to the audience. Austin's the outgoing CEO of a company called Flex, LNG and advanced gas. He's got prior experience as CFO of other companies, and he's been involved in this industry, let's say, for many, many years. So Austin, why don't you take a minute and tell us what is the unique value that you have been bringing to this wonderful world?

Oeystein Kalleklev 01:30
Yeah, thank you. No pressure on that one. I've been doing shipping and energy, I would say now for 20 years, worked for three different self made entrepreneurs, three families, basically. First one, we answered that move. We took over the Christian shipping company when it failed in the 1980s so I was CFO for him, and I'm still on that board, which is a kind of industrial investment company. And then I joined another family, the segment family who know today is the sponsor of the Knudsen company, where I was CFO, and also chairman of the MLP general partner. Of them will be crude offshore partner, listed in New York. And then the last seven and a half years, I've been running two shipping companies, flex LNG, which we listed in us in 2019 and then advanced gas, which I've been running now the last three years, on the side, where we today actually declared our last dividend. So we kind of winding up that business, and that also felt a good time for me to step out and do something new.

Andrew Stotz 02:39
And what, what has changed in the industry, you know, from when you first started to where things are now. I'm curious, like, is it the size of vessels, or is it the type of gas, or is it the ports, or, I mean, what? What are some of the things that you've seen, the changes that have been happening,

Oeystein Kalleklev 02:58
if we look at shipping. Then, firstly, of course, I've been involved in a lot of other industries, like oil services, restaurants, mining, bio, ethanol and another retail and real estate. But if you look at shipping, I think that the biggest drivers the last couple of years been, of course, the shale revolution in us, which certainly made us a big exporter of hydrocarbons, rather than being the biggest importer. And then the flip side has been China becoming the biggest importer. So that has changed the dynamics of the shipping world for most segments, being, you know, the container trade. It started with the container trade, with China entry into vtuo, and then us becoming exporter, biggest exporter of LPG, by far, biggest exporter of LNG. And they are going in both segments, and then also oil, where we also see us exporting crude oil. So so that's a big change, I think also after the great financial crisis, 2008 to 11, it was in Europe with the peaks crisis, we have also seen banks becoming more reluctant to lend to the sector, European banks, especially than German banks, which are more or less when bankrupt, they've been stepping out of the sector. The Chinese been entering. But meaning that, you know, the banks are more reluctant to lend, which means that you need to have bigger clients. So the companies are getting bigger. There are more regulatory costs of complying with all these new rules coming out of both EU and the IMO, which means that you need scale. Capital Markets also like scale. You know, they don't want to be investor in companies with two $300 million market cap. They want to have 1 billion, 2 billion, $3 billion market cap in order to make it interesting. So these, these are, you know, the biggest drivers, I would say, in the shipping world. This together, of course, with technology. But technology is always changing, and

Andrew Stotz 04:55
what would you say is the future. I mean, like, for instance, we saw with the. Russian invasion of Ukraine as an example, shifted all of that oil and gas coming out of Russia going directly into Europe. As an example, we see China trying so hard to try to transition onto nuclear energy, and you know any other, you know, renewable types of energy, we see deals, for instance, happening in currencies outside of the US dollar between Iran and China as an example. You know, I'm originally American, but I've lived out of America longer than I lived in America. So I'm kind of watching from around, you know, from far away. But I'm just curious, is there any trends or thoughts that you have about what's the future in this space?

Oeystein Kalleklev 05:47
A couple of items you mentioned Chinese walking outside of the dollar. And we do see this, China has really reduced the holdings of Treasury or government bonds, which is one of the reasons why I think the Chinese banks have been quite aggressive in also lending to the shipping sector and other sectors like the Belt and Road and all that stuff, because they don't really want to have the kind of assets tied up in US government bonds and being pressured by the US government. So they rather want to recycle money into development banks and commercial banks where they can lend so they can have mortgage in a ship, which is much harder for the US government to kind of confiscate it, like we've seen with Russia. Now, after the invasion of Ukraine, they really kind of lost a lot of money because the Western government have freed those funds like they've done within Iran and Venezuela back in the past. And it's also one of the drivers Why gold passed three and a half $1,000 per toy owns recently. You know, I remember when gold went above $1,000 we were big. The family I worked for. We were biggest investor in a gold mine in Guinea. And, you know, $1,000 was all you know. Upon, you know, unbelievable how high price, and now it's three and a half $1,000 so, so, so that's one drive where we see China wanted to invest more in diet assets. In terms of the Russia, they have been managing to turn out battles much better than we thought. We thought with the sanctions, they would have to decline the production. They haven't really but this changed the trade pattern of where the oil is flowing. And typically what you've seen is oil flowing from Russia to India, Brazil, China, and then actually being refined and turning back into Europe. So it's been very good for those people with a product tanker. And actually, tanker market is quite good there these days.

Andrew Stotz 07:41
And one of the things that you can if you look at the map, and you look at the Straits of Malacca as an example, near Singapore, you know, at the edge of Singapore and Malaysia, it's such a pinch point for travel of natural gas, of oil and all of that thing. And some people would make the argument that the US has the power to shut that down, and if they could, then that could put a crimp on the access to the markets of China. Of course, on the other side, you could argue that China is trying to diversify and get pipeline gas, and they're trying to get away from, you know, oil and gas. But I'm just curious if you had any thoughts about, like, the movement of, you know, gas and oil throughout the world. And you know what, what your thoughts are about it?

Oeystein Kalleklev 08:30
Yeah, of course, China is very strategic when thinking about energy security, and that's one of the reasons why they're still building COVID despite them saying that they want carbon emissions to peak by 2030 so they're still building coal. They're building nuclear on a massive scale. They are sourcing more gas from Russia, not not only because of security concerns, but really because the Russians are desperate to sell gas to new buyers, because the European buyers are gone. But one item which they are very dependent on is, of course, crude oil, which, of course, they are boosting domestic production of both natural gas and oil, but still, they are by far the biggest importer. And as you said, with the Navy USF, they could block it, and that's why we also see the Chinese building a lot of naval ships, and then today have, in numbers, more naval ships than the US, which is also one of the reasons why Donald Trump wants to reboot US Naval capacity to build more ships, and you have these tariffs and port fees on on them, ships which are not domestically built. Yeah.

Andrew Stotz 09:37
I mean, it's interesting watching all this go on and I appreciate you sharing some of your thoughts on it, having had a lot of experience throughout the years in that space. So but now it's time to share your worst investment ever. And since no one goes into their worst investment thinking it will be, tell us a bit about the circumstances leading up to and then tell us your

Oeystein Kalleklev 09:58
story. I It's a. A difficult question. I haven't really prepared on it. I've been part of some investments which have been really bad. You know, most of them were back in the great financial crisis, 2008 when everything unraveled. I mentioned the gold mine in Guinea. I think the family I worked for, we had invested about 100 and $50 million to become the biggest shareholder of that mine was called who gold. And, you know, it was an unstable regime. It was a coup. And then this, this army guy to control. He was shot in the head. And eventually there was so many hiccups operationally. So eventually, I think that 100 and $50 million turned out to be like $3 million when we sold our last share. So everything, more or less, was lost. So so this will happen, crisis, um, I've also been involved in bio ethanol in Brazil, where we invested probably, like $300 million into a bio ethanol plant in Brazil, where, also when, certainly during the great financial crisis, we had to restructure the whole company, and I had to go to us, talking to bond holders, getting them to either choose whether to become shareholders or take a very big hit on the bond loans.

Andrew Stotz 11:31
And what did they end up choosing?

Oeystein Kalleklev 11:35
They, of course, choose the money because they got 45 cents on the dollar, which at that time was fantastic, because everybody want cash at that time.

Andrew Stotz 11:44
Okay, so interesting. You have any other stories? Those are pretty powerful. By the way, your camera went off. I don't know what happened there. I think it's okay. If it doesn't, if you can't, that's fine. We just keep going. Yeah.

Oeystein Kalleklev 11:59
Now, of course, I also been involved in, you know, mining seems to be a disaster. So I've also been involved in nickel mine in the Philippines, where we basically lost everything as well. This also around 2008 11 window. I've been involved. We had a, we were gonna build a FPSO, basically a floating production ship for oil. This is like 10 years ago, our budget was $280 million I think we ended up at $500 million for that building project, and also being one half years late. So of course, those projects are everything once you're getting into mining, you know, usually that's this saying that, you know, a mining, a miner is like, it's a hole in the ground and a cheat on top of it. So mining is a difficult business, offshore business, we talked before the show about the drilling rigs. I've been involved in drilling rigs as well. So offshore is it? Because it can be fantastic. You can make fantastic amounts of money, similar to mining, but once it stops, it's you usually get bust.

Andrew Stotz 13:11
And, you know, it's interesting hearing these, you know, huge numbers and all that. And I would suspect that over your lifetime of in work, you created a huge amount of value. So these were, these were some of the big losses, but I'm guessing that for the families and other investors, there was a lot more money that and things that went well.

Oeystein Kalleklev 13:31
Yeah, you know what has focused most on the during the last 20 years has been shipping. So shipping is, of course, seriously cyclical. So if you find one industry which is a clicker with shipping, is one of those where, typically you have this boom and bust cycle. People markets get good. We saw this back in 2004 5678, until, you know the financial crisis. People were building ship left center and right, you know it. And then when the financial crisis came, the bulk market was poor from 2009 to 2019 so we had 10 years with a very poor market. So this is typically us. You've seen this also in LNG after Fukushima, Japan really bought a lot of LNG, and then people started ordering a lot of LNG ships, a bit similar to what has happened today. And then a lot of these projects were for new export capacity was delayed, and you had a really, really terrible market for LNG shipping in 2014 1516, 17. However, the kind of the down cycle there was shorter because you have a high growth of the market. So the kind of the trend growth takes you out of that depression quicker, for driver where you have a lot less growth. So it takes longer time to get out of a situation with over supply and. Typically involves a lot of trapping of all the ships. So today we are a bit in the same picture with LNG ships, where you had this boom after the Russia invasion of Ukraine, where LNG prices went to the moon. People ordered too many ships. New export projects are delayed, and we have probably the worst LNG shipping market ever now, so we started to falling off a cliff last year. It's been continuing this year. It probably will continue next year. And of course, one of the reasons why in Flex LNG, we took out a lot of long term charters ahead of this, because we saw that the order book was swelling too big, and we locked up more or less all our ships on long term charters, and have about 60 years of minimum charter backlog, which takes you through this process where you have too many ships and you where you probably need to scrap some ships.

Andrew Stotz 15:53
Yeah, shipping is such a cyclical I mean, we had some ship we have some shipping companies here in Thailand that I covered as an analyst, and it's just incredible. I think the whole thing about shipping is you gotta, like, be able to survive the whole cycle, because if you get knocked out at the bottom, then you never get the upside. No,

Oeystein Kalleklev 16:11
I'm sorry, in the other shipping company, I've been running advanced gas, we've done a bit different so it's really two way to capture the upside. You can either sell your ships, because once market is good, asset prices increases, it has a lot great value having a ship on in the market making super profit. The other way is to charter the ships out on long term charter and lock in that super profit, which is what we've done in Flex, because it's not really our very liquid second hand market for advanced gas, where we doing LPG freight? It's bit different. It's not really feasible to get those long term charters. So instead of doing that, we sold off all the ships. So altogether, we sold off 23 ships, 20 ships, just last year. We took the money and we paid out everything as dividends. So for 2024 we paid out a billion dollars of dividend, and last three years, we paid out $1.3 billion of dividend, and then we closed the shop. That's it. So you have to be really disciplined when you are in a cyclical industry, when you have to have a view on where is the market going, and how can I adapt to that? You know, it's

Andrew Stotz 17:22
interesting. When you look at a lot of great investors, they end up holding companies that are consumer companies, because they're not as cyclical. And so you end up, like investors, end up in these, I would say, much easier, easier type of companies to invest in. But I'm curious, out of you know, out of these different experiences in over your career, how would you describe the lessons that you've learned?

Oeystein Kalleklev 17:48
I think I touched upon it. You know, you have shipping is really hard to be kind of have a strategy. We do see some companies having a strategy that by five years, we're going to have twice as many ships, or something like that, which doesn't really work. When you have such a dynamic industry, you really have to think about adapting. It's more about adapting and being tactics rather than strategy, where you have to think about, where is the market going? Where do I think the market will be in two years time? Should I lock in some long term, Charlotte, should I sell some of the ships and kind of adapt to the market all the time, as you get every day you get new information. And certainly some people are putting in along a big contract for 20 new ships, and that's going to change maybe some of the market outlook. So you really need to adapt all the time. Of course, you have to always focus on running your ships efficiently. If you're not running your ships efficiently, you're gonna lose out anyway, so that it's but it's like a critical success factor. You have to really be able to run your ships well. And then it's about timing. So shipping is a lot about market timing, I would say. And those people who have made it big, like the biggest shareholder, both frontline flex, LNG avance, John Fredericks, and he's been in the business for 60 years. And one of the reasons why is he still there, and the most successful is his ability to time the market. And of course, you saw the same with Onassis back in the days he was almost bankrupt, and then the Suez Crisis came in 56 and suddenly, within a short window of time, he became the richest guy in the world, because with the Suez Canal closed, freight rates went to the moon, and he had all the ships open.

Andrew Stotz 19:37
It's incredible. So three things that you mentioned, it's hard to set long term strategy, because you've got to adapt to what's happening in the market. And then you also talked about the operational part, about you got to run ships efficiently, or else you're going to miss, you know, the core aspect of what you're doing. And then there's this timing aspect, which makes this industry so much more challenging. And. Anything else you would add that those three things, I think are pretty, pretty much sum it up.

Oeystein Kalleklev 20:03
I think you have to be knowledgeable about technology, because technology is changing quite often in shipping, even though it seems like a very conservative industry. You know, you have new ship types, you have new engines and, you know, suddenly you have these shifts where you get the Eco ships, for example, which is consuming less fuel, and that makes them a lot more competitive in in the business, in LNG, you have had kind of three different technology changes you had. You started with steam engines, which, of course, most people understand is not very efficient. Then going to diesel electric engines, and then eventually going through modern diesel two stroke engines, which basically reduce your fuel consumption per cargo lifted by 60% so of course, that shipping has a lot more earnings capacity than the older type. So in general, you need to kind of be smart about how you run a shipping company, doing it lean, follow the technology. But the kind of what differentiates the successful owners is that ability to time the market, to kind of read the market, where is it going, when should I exit, and when should I invest? And usually when you're going to invest, that's when the market is broken. But that means also it's very hard to raise capital, because most investors, they don't really want to commit to building new ships, which is going to hit the market maybe in three years time, when the market is broken. But that's kind of where you do the good deals with the yard. You get the lowest price, you get the best payment terms, and you can get delivery windows where you think maybe the market has come up. I'm

Andrew Stotz 21:47
curious if you've ever seen any financial analysts throughout the years that you thought predicted or understood the shipping industry Well, or do you use it very hard for an outsider like that to really get it?

Oeystein Kalleklev 22:00
In general, there's two big stock exchanges for shipping stocks today. It's New York and Oslo. Oslo, it's for more like, historical reasons. This has been a shipping nation since the Vikings. So people has always been focused on shipping. We have, like, a one of the longest coast in the world. It's not very densely populated country, so people has always been out at sea. So actually, the first prime minister of Norway, he was a ship owner. So, we have a lot of families with a lot of tradition for shipping industry, which means that people are knowledgeable about it. And you have these investor communities, which are where is heavy on shipping. Investors. This means that shipping as part of the index in Oslo is very big, yeah. And actually being a shipping analyst in Oslo, it's like being almost like a superstar. You are one of the analysts that gets most in the newspapers, if you go to the US, if you're a shipping analyst, it's like you are above, just above the janitor in the office, because nobody is focused on shipping that people want to focus on finance and tech in these other industries, nobody wants to focus on shipping. So that means that this, there's not been that many shipping analysts in the US. There are a couple which are good, you know, uma Nocta Chapelle. But in general, you know, I see some of the Norwegian analysts, like Rob Walston in Pareto, Leon in DNB and petrogen in our ABG. Those guys are typically always thank the number one, two and three in Norway. So I tend to read those. Analysis is coming out of them more or less every day.

Andrew Stotz 23:50
I i normally will ask you, what's a resource that you recommend? And you're welcome to recommend one. But I also wanted to, I thought it would be interesting, since I have a I train a lot of young people to become sell side analysts through my valuation master class, and I've had about 500 graduates, and since I was a financial analyst myself, they, a lot of them want to become financial analysts. And I'm just curious, like, what advice would you give to a young person that says I want to cover the shipping industry in the future.

Oeystein Kalleklev 24:25
Yeah, now I've been a financial analyst myself, so sometimes I very much Miss sitting in Excel the whole day during the calculation. These days I do more back of the envelope rather than the kind of nitty gritty stuff. Yes. How, how to become, you know, I think you generally, you need to have a understanding of shipping, because it's not as straightforward as people think. People think it's a simple business. You take goods from A to B, so. Reading up on shipping, I would say is good evaluation is not that difficult. It's basically a couple of ways of calculating. You have, of course, the dividend yield. Typically when shipping companies become a bit mature and start paying good dividends, which is quite common in shipping, you can have like a dividend yield pricing, where typically you see yields of eight to 12% flex, I guess is 14% today. Then you have more like the nav approach, where you kind of, you take the like the broker values of the ships, and you kind of, this is the steel value of the company. You deduct the net depth, and this is the equity value per share. Of course, that doesn't really reflect where is the market today. So if the market is really good today, it kind of you have a super profit of being in the market, or you could have, like, a loss. And then, of course, it's like the DCF, where you just have to make assumptions about where the rates are going. But that's really hard to do. Yeah,

Andrew Stotz 26:02
that seems so nav approach is interesting in shipping companies. The last one I looked at, many years ago, each ship was a separate company. Is that the way it's typically done? Yeah,

Oeystein Kalleklev 26:13
typically you ring fence, one ship, one loan, one company. So which also makes it easier to sell it. So if you want to sell off a ship, you can either sell the ship, or you can sell the company

Andrew Stotz 26:23
got it. And then if, if you're

Oeystein Kalleklev 26:27
thinking like Warren Buffett, it's a bit like, you know, I read a lot of Warren Buffett books, and it's like, I think the NAV is like this safety of margin approach. So if you kind of, you can screen this company. This company is being traded at 50% of NIV. So okay, that's interesting. Why is it traded at 50% of NIV? And there can be a couple of reasons, a bad market sentiment, poor management, reluctance to repay dividends. And then, you know, and then, if you but if you have 50% pricing of nav. You have kind of a big safety question, you know, it's, it's, it's limits to how bad that management can be

Andrew Stotz 27:07
because, because, also it means that, in the worst case for the management, they could start selling their ships into the market at market price, and you would realize the nav at the market price, assuming the ship prices aren't going up, would that be exactly,

Oeystein Kalleklev 27:21
exactly like advanced gas? We were that priced 50% of navs. We started selling ships above nav, you know, most with quite good book profit and higher than the analyst estimate. And suddenly we realize the NAV of the company, plus a bit more. But that means that you have management which are shareholder oriented. So it means that the share the management really needs to be tied, in terms of compensation, to value occasion for shareholders. Some, unfortunately, some management teams are not really tied to shareholder value creation. They are more tied to their own value creation because they get a big pay package and bonuses almost regardless of how the shareholders are affected. So so those kind of management teams you should shy away from because they only going to enrich themselves, not not the shareholders and then, but sometimes, you know, some of these shipping companies get hammered on, even though the management is prudent and conservative and and focused on value location, and that gives you sometimes very good opportunities to to make a killing. So if you look at the shipping index here in Oslo, from 2001 to 2000 and middle of 2024 so it's a three and a half year stretch. It kind of it gave the same return as The Magnificent Seven.

Andrew Stotz 28:50
So timing is critical. Yeah,

Oeystein Kalleklev 28:52
it hasn't been so good since last summer, though. So it's done now, and I think it's in a pace where it makes it attractive.

Andrew Stotz 28:59
And when we talk about nav, first question I had about that, is it when, when a company, let's just say a ship is let's say the chartering rates are very high, so the ship is actually quite profitable. Is that profit going into the company that owns the ship, or is it going into the main company now?

Oeystein Kalleklev 29:18
So typically, our ship will be owned by a company, and that company will be doing the charter contract. Then money will flow into that company, and then that company will flow the money up to the parent, and then the parent can decide whether to pay that out as a dividend or paid on the leverage or just build a war chest.

Andrew Stotz 29:37
Okay, so the profit, if there was an exceptional profit at a period of time, it would be accumulating in this ship company, rather than the parent company that owns the ship company.

Oeystein Kalleklev 29:47
It most of the time. Yes, but it could be that the kind of the owner charter the ships out from, like us charting company, so they get the money into that company. But generally. Really, this not is not really a problem. These SPVs are like shell companies, typically domicile and Marshall Island, Cyprus, Bermuda, something like that and and really, nothing happens in those company except for owning the ship.

Andrew Stotz 30:15
And it's like a pass through. Yeah. Pass through, yeah, okay. And so when we calculated the nav and the discounted nav, is it the same as saying price to book value? Or do we need to make adjustments for the value of those ships? Let's say a company owns 20 ships, where the company owns them, 100% I presume, and they're consolidating them. Is it properly reflected in book value, or do we need to make adjustments to understand the net asset value? Yeah,

Oeystein Kalleklev 30:45
it's a good question. Book value is a very poor measurement for shipping nav, because typically shipping prices goes up and down a lot, so their book value reflect where at what price did you purchase the ship for? So if we take flex for as an example, so we bought 13 ships when prices was at rock bottom levels, like 180 180 $5 million so when we then kind of capitalize those ships in the balance sheet, they are capitalized at historical cost minus depreciation. Why ship building prices for LNG carriers today are like 255 to $60 million so that would be the replacement cost, and kind of the long term rates for new ships reflect the cost of new buildings. So, the book value is much lower than the nav. On the contrary, you could have a situation where one shipping company buys a lot of ships on peak of the market at $260 million and then ship building prices goes to 200 then book value doesn't affect. The book value is too high. So you really have to measure kind of the nav towards kind of replacement cost, not historical costs.

Andrew Stotz 32:03
So in other words, what you're saying is it's not like a security where we market to market, and basically it's at the historic cost. So you've got to make an adjustment for where things are at. And if you make that adjustment, and you say, okay, they got, you know, 20 tankers that are a certain size, and those are a certain value, they bought those, the historical cost, let's say, is, you know, 500 million. And the market value of those ships now is 700 million. We would say that there's a 200 million potential gain if they liquidated them. Yeah. Okay,

Oeystein Kalleklev 32:38
excellent. And it's not that hard to get quotes on, on your billing prices. Brokers have them. They're even databases, like vessel value, where you can take out the value of individual ship, or kind of like a benchmark ship, like a new build five year old ships, 10 year old ships, and then you can kind of interfere where the value should be.

Andrew Stotz 32:59
And it's all the is all the value in that in the holding company, is all the value in the ships, or is there additional value that's in the holding company?

Oeystein Kalleklev 33:08
That's always a typically good question in shipping where we have, is it the steel value, or is it also a software value? Is it a brand value, I think, for a general commodity shipping company where you're doing tankers, burgers, products, that's hardly any software value you are. You are a price taker, and nobody is going to pay you more freight because you have a nice brand. So it's really maybe some companies are more leans, so it could have a bit competitive advantage in being lean on costs. But in my general answer is, no, there are some, you know, if you look at Maersk and MSC, like big container lines, they could have a bit of a software value because they have a good booking system. They have sticky customer relationships. So there you could argue there is somewhat software value. I think maybe you could also argue that for some chemical tankers. So chemical tankers, they have a lot of contract of refractments, which is like a volume contract. They have terminals which also creates a bit more sticky relationships with the customers, which could have a value.

Andrew Stotz 34:21
And does it make sense for a management team to say we want to build a company that has some recurring revenue being 50% of the value of our business and then the other 50% being the volatile shipping aspect, or does that end up just not making sense, and it's better just to play the cycles in a smart way.

Oeystein Kalleklev 34:42
Yeah, again, also our question, and we all talk a lot about in the shipping world. So when we sold off all the ships now in advanced gas, we also took our 10, now 12.8% shareholding in our US listed company called beam. LPG, and we took those shares and we dividend them out to our shareholders, because we don't want to be just like a stock where you own stock in a model listed company, so we dividend all those stocks so they have kind of a view that they want to kind of fix about 30% of the freight exposure with long term contracts or derivatives, while they want to be open on the remaining 70% so I think that's more a risk strategy. It depends a bit on your leverage. So if you have debt, you have interest obligation, you have repayment of debt, and you might want to secure some of that in order to attract better financing. But of course, if you don't have any debt, your cash break even is basically your OPEX, and once you're getting to those levels, a lot of people will go bankrupt. So it's really about your risk and your willingness to take risk. Of course, if you are have a high conviction, like we did in advanced gas in 2022 we looked at the market for 2023 and the market looks terrible. Expectation were so low, we said, you know, just, let's just level up the company get more debt, because if we have more cash, we can withstand our poor market. So then we meant when, more or less, or everything spot, and the market took off, and we were really able to capture that super profit during that year, which is something similar we did with Flex LNG back in 2021 but then you need to have a high conviction, and you need to have money in the Treasury in order to be able to bleed, because you might lose some money. But sometimes it's worth it. It's really when you can make the killing, when you're taking Max risk, when everybody's depressed. I'm curious

Andrew Stotz 36:45
about your own personal investing style. Are you much more conservative, or are you aggressive? You know, how do you mirror what you do in your career? Or how do you invest personally?

Oeystein Kalleklev 36:57
Yeah, so that's what I'm doing these days after I left my day job, my two day jobs first of April. So now I'm mostly investing. I would say I own. I only feel I have an edge in shipping and energy stocks, so I don't pick other stocks. Then I might as well buy a fund or index. So in shipping, I understand, since I've been around for 20 years in that industry, so that I'm quite aggressive. Of course, it wasn't the best of days to start as a investor, first of April with this Liberation Day by Trump, the same week. So it's been a volatile April. As an investor, you didn't

Andrew Stotz 37:33
know you're going to be free of your money.

Oeystein Kalleklev 37:40
The shipping stocks been, actually, some of them been doing quite well. The tanker market is really good now. So I've been very long in tankers, which has been a good play, because OPEC is really making a price war. Now. They want to get shale production down. Saudis are tired of holding back production, so we see OPEC really putting more barrels into the market, which is not good for energy stocks. So I don't have a single energy stock in my portfolio, but it's really good for freight because it creates more tanker demand, right? So I'm quite aggressive, yes.

Andrew Stotz 38:12
So yeah, you play the volume price game. When volume is rising, you pay the ships. When price is rising, you pay the energy companies. Yeah,

Oeystein Kalleklev 38:21
yeah. So right now, I think some of the energy stocks are starting to look more attractive. Oil service stocks are really handled on if you look at the OSX, which is the finish oil service index that was launched in 1997 at an index price of 75 today. I haven't checked it's like 55 so you have 30 years with negative returns, no at one, at one stage, this would will turn, but I don't really see the catalyst right now.

Andrew Stotz 38:54
Yeah, I mentioned my interview, episode 597, Lance de pew, and he was, you know, investing in rigs, rig company and that type of thing. And I just remember seeing him being, he's such a smart guy, and then just to see him losing over and over again, it was just like terrifying when I think about investing in that industry. So I think you got to have a stomach for it. Let me ask you the last question, which is, what is your number one goal for the next 12 months.

Oeystein Kalleklev 39:24
I'm not really the guy who kind of plans stuff. I'm in shipping you. You don't make a lot of strategies choice. It's kind of adept right now, I've been off of three and a half weeks, so I've been kind of just settling down reading a bit more books. I'm on a guard leave the first of October, so I can't really do anything for the next five months or so, but, you know, I think I will. I find the shipping industry one of the most interesting industry, because it's such a global industry you have, it's a feel. Small universe. Even though we transport close to 90% of the goods, it's a fairly small industry, and there's a lot of interesting character. It's a very dynamic and you need to be quite kind of versatile in your skill set, because what Fed is doing, what the politicians are doing. It all affect the industry, China, US, trade relations, geopolitical events, it all affected. So you really need to be on top of contemporary issues in order to be a successful shipping investor. So that's why I think that's one of the most interesting industries to be. That's such

Andrew Stotz 40:39
a fascinating thing about not doing a lot of strategy, but trying to adapt to what's coming at you right today, and that's so different from so many industries. So I really, really appreciate learning that. I'm just curious about Norway, do they have good records of ancestry, for instance, where you have been out on boats, or family that's been on the sea, or any interesting things in your ancestry. I grew up at

Oeystein Kalleklev 41:07
the sea. We were always going out in both my grandfather, he worked for Stotz Nielsen. Stotz Nielsen is the biggest chemical tanker company in the world, probably, so my grandfather worked for that. I walked in the shipping industry for 20 years now. So of course, we went out the window. You can look at the scene. So it's in

Andrew Stotz 41:30
your blood. Yeah, it's in your blood. Well, listeners, there you have it. Another story of loss to keep you winning. Remember, I'm on a mission to help 1 million people reduce risk in their lives, and I think this helped us to think about how we manage our risk in the shipping industry. As we conclude Austin, I want to thank you again for joining the mission, and on behalf of a Stotz Academy, I hereby award you alumni status for turning your worst investment ever into your best teaching moment. Do you have any parting words for the audience?

Oeystein Kalleklev 42:01
Oh, thank you for inviting again, and I will be listening to more of a few episodes.

Andrew Stotz 42:06
Thank you. And I really enjoyed it myself. I think I learned a lot, and I'm going to share it with my students in the valuation master class, because the discussion about the valuation and all that, I think will help them understand the industry. So I appreciate that, and that is a wrap on another great story to help us create, grow and protect our Well, protect our wealth, fellow risk takers, let's celebrate that. Today, we added one more person to our mission to help 1 million people reduce risk in their lives. This is your worst podcast host, Andrew Stotz, saying, I'll see you on the upside. You.