A Tale of a Wildcat Drilling Engineer & a Cargo Ship Captain
Life on an oilrig in the middle of the Gulf of Thailand can be pretty daunting for most of us, but for Khun Panurach, it is all in a day's work. Actually, it is a month worth of work to be precise. Men that work on oilrigs, usually work for one whole month continuously and get one month off on shore, in other words, one works 6 months in a year but get paid for the whole 12 months. Not a bad life but there are only four companies that have concessions to explore oil and gas in the Gulf of Thailand : PTTEP, Unocal, ChevronTexaco and Thai Poco. Actually, there used to be a fifth company, Thai Shell Exploration but it was sold to PTTEP some years ago. In the business of oil exploration, there are four types of engineer: drilling, production, petroleum and well service. Khun Panurach is a drilling engineer, or what is known in the trade as “Wildcat”, which means that he is responsible for extracting oil from the ground under the seabed.
After having been with ChevronTexaco for almost 5 years and prior to that with Unocal, Khun Panurach has been given the opportunity to relocate to Houston, Texas to be part of a specialist group that give technical advice to all of the business groups of ChevronTexaco worldwide. This is one of the major strengths of multinational corporations. By operating in many parts of the world, the company has built up an impressive team of specialists from Thailand to Nigeria, Alaska to Latin America. And these country specialists take turn to serve in the company's “brain bank” in Houston. Problems that occur in the Gulf of Mexico are likely to be the same ones as in the Gulf of Thailand. Therefore, a Thai drilling engineer can be of great help to the men working in similar terrain but on the other side of the globe.
ChevronTexaco comprised of 3 companies before they were merged together. But for most of us in Thailand, the name Caltex is probably the most familiar due to the numerous petrol stations around the country. In fact, Caltex is a 50/50 joint venture between Chevron and Texaco before the two companies merged together. The company is head quartered in San Francisco but all of the exploration works are conducted out of Houston, Texas. In fact, ChevronTexaco recently bought the old Head office of Enron when it went bankrupt a couple of years ago.
Khun Panurach, is married with one daughter, who is 4 years old. By taking this new post in Houston, it would mean that his wife will have to resign from her job at Unocal Thailand and his daughter will need to find new school in the US. During the 4 years period, Khun Panurach will receive two sources of income both in Thailand and in the US. His salary in Thailand together with provident fund contributions shall remain the same and in addition, he shall be entitled to “living allowances” in US dollars. On top of that he shall also be entitled to college allowances for his daughter as well. His current portfolio comprises of 50% bank deposit; 10% stocks; 10% long term equity funds (LTF) and 30% real estate (a house and a condo). He is currently debt free and his provident fund contribution is 10%.
Recommended portfolio :
Since Khun Panurach still wants to come back to Thailand, I am going to suggest two separate portfolios for him, one in Thailand and the other one in the US. Let's deal with the Thai portfolio first, I would recommend that he rents out both his house and condo in order to generate income on his properties. But being abroad, collecting rent may not be an easy task, however, his parents still live here and should be able to help out with the administration of the two properties. Failing that, I would recommend that he should sell both properties and use the proceeds to invest in the stock market instead. Unoccupied houses and condos tend to deteriorate quite quickly and will lose its value over time if not properly maintained.
By working in the US, Khun Panurach would not have the time to look after his stock portfolio in Thailand, therefore, I would recommend that he sets up a monthly savings plan with one or two of the fund houses here and engage in “dollar cost averaging” technique by investing his monthly income into the following equity funds: 25% in SET 50 Index Fund; 35% in equity Foreign Investment Fund (FIF) and 10% in LTF and Equity RMF. Although, Khun Panurach may not be working in Thailand but he still gets paid locally, therefore, he shall be subject to the same personal income tax. In this way, both LTF and RMF can help reduce his tax burden substantially. Moreover, Khun Panurach is still in his 30s, and thus he can afford to have about 70% of his local portfolio in equity with the remaining 30% in property.
US Portfolio : According to Khun Panurach's estimate, he should be able to save around 50% from his living allowances. Therefore, I would urge him to set up similar savings plan by investing his monthly savings in the following funds: 50% Global equity; 25% Emerging Markets; 15% World Energy Fund and 10% US$ Money Market Fund. Being debt free with positive cash flow and a savings rate of 50% is an enviable position to be in. Moreover, the school fees for his daughter shall be taken care of by the company. Therefore, I would take this opportunity to invest aggressively in equity but he still needs liquidity for emergency purposes, hence the reason for 10% exposure in money market fund. The other factor, Khun Panurach should consider is to find an employment for his wife in the US. Moving from “dual” income to single income can cut down substantially on household income. In this day and age, women can bring in just as much income as the husband. Certain women even earn more than their husbands! Therefore, it is important to aim for double income if possible.
Captain Seksit, on the other hand, is a captain of a cargo ship, belonging to Regional Container Lines (Singapore) (RCL), which is also a listed company on the Stock Exchange of Thailand (SET). Captain Seksit gets paid in US$ and the employment contract is renewable every 6 months, meaning that he would work continuously for 6 months and get one whole month off. Captain Seksit has been working with RCL for over 14 years now. He joined the firm as a second officer straight after Naval Commerce School, where he spent 5 years earning his degree. One of the major challenges of working on the high sea is overcoming seasick and the other is homesick. Seasick, I've been told, one gets used to it after a while but homesick is a little more difficult to deal with. The ship that Captain Seksit is in charge of is call Mathu Bhum, a Thai registered “cargo feeder” ship that runs between Bangkok, Laem Chabang and Singapore. Apparently, the really big ocean-going vessels only stop in the deep-sea port of Singapore and smaller ships are used to feed the cargo, hence the name to smaller ports like Laem Chabang and Bangkok.
During Captain Seksit's time with RCL, he has seen his fair share of excitement on the high seas from fire on board, to collision with tugboats and piracy in the Malacca Straits, where pirates still roam! Yes pirates! Well actually these are ex-naval personnel gone bad and they make a living by robbing cargo ships for valuables. I often wonder how these pirates actually climb on board a moving ship in an open sea. According to Captain Seksit, it's a bit like what we see in a James Bond movie, these pirates work in team of up to three boats and nowadays they often come fully equipped with automatic weapons instead of just knives.
As mentioned earlier, life on the high sea can take its toll on the family life. Captain Seksit only gets to see his family once a week. In fact, the family drives down from Lop Buri every weekend to see him. Although, the schedule is much better these days than before when he was on a much longer routes to China, Japan and Australia. Working his way up to be captain also took a lot of hard work and a bit of luck as well. Normally, it takes about 2 years to move up from 2 nd officer to Chief Officer, assuming that you pass the exams and another 2 years to become captain of a ship. But nowadays, it may take longer because there are more candidates and not that many ships, unless on works for a foreign firm. In fact, RCL has 35 ships in its fleet and several other shipping lines are also listed on the SET.
Captain Seksit is 36 and married with one boy, 8 and a girl, 6. His wife is a nurse in Lop Buri and they have a house there. The unusual thing about Captain Seksit's package is that his payroll is on a 6 months contractual basis, therefore, he is not provided with provident fund benefits but he receives health insurance from the employer. As mentioned earlier, he is paid in US $ and does not pay Thai income tax, which is a big plus for people with high income. His current portfolio comprised of the followings: 78% real estate, 48% of which is a loan from banks; 3% in Vayupak Fund; 6% in SET listed stocks (8); 5% in lottery; 2% in cash and 5% in life insurance. As anyone can see, Captain Seksit's portfolio is too heavily tilted towards real estate, moreover, he has quite a large loan outstanding. Currently, he is building an apartment for rent, which shall be completed in October this year. Although, the apartment is in a fairly good location near RBAC, Rathanathibeth Business Admin College, and he didn't have to pay for the land because it was given to him by his father, but the danger is that he has to rely completely on his brother, who is an architect, to supervise the construction. Once the apartment is completed, Captain Seksit's first propriety is to pay down the loan from rental income and cash flow from his salary. Although, the amount of outstanding loan is too large for my liking but there's not a lot that one can do now but to pay down as quickly as possible. This is one of the troubles with a lot of people that are not experts and do not have the time but would like to dabble in real estate development.
Given that the amount of loan is almost 50% of the portfolio, the options available are quite limited and I would recommend that Captain Seksit sells his stocks and lottery and diversify into Foreign Investment Funds instead. The strategy here is to look for higher yield than what lotteries can offer and given that he already has investment in Vayupak Fund, it is prudent to diversify into offshore markets where it is less volatile than the SET. This is based on the assumption that he has sufficient cash flow from rental income and salary to pay down the loan. However, should there be any “difficulties” along the way such as rental shortfall or higher than expected maintenance expenses, then Captain Seksit would need to raise his cash reserve from the current level.
Although, Captain Seksit, does not have any other loan but he still has two more burdens to consider in the long run; one is his own retirement nest eggs and the other is the children's college expenses. Although, school fees in Lop Buri may be affordable for now but if he has bigger plans for his children, then it is a different ball game. This is the reason why he should build up his equity portfolio as quickly as possible while he is still in his prime earning years. And for someone who is paid in US$ and does not pay Thai income tax, then offshore investing is crucial for long term growth.
As mentioned earlier, both Khun Panurach and Captain Seksit are both unique in their jobs and hopefully, people with similar background can learn from their experiences. As always, if you need your portfolio to be analyzed, I can be contacted at teera@finansa.com