Is change afoot at Crescent Point Energy?
Is change afoot at Crescent Point Energy?
CALGARY — The Globe and Mail
Published Tuesday, Feb. 21, 2017 5:21PM EST
Last updated Tuesday, Feb. 21, 2017 6:11PM EST
In 2016, Crescent Point Energy Corp. chief executive officer Scott Saxberg trumpeted the virtues of Saskatchewan’s oil industry in an ad produced by Premier Brad Wall’s government.
Decked out in hard hat and coveralls, Mr. Saxberg talked about how Crescent Point, already the top oil producer in the province, could spend another $15-billion developing its Bakken and Shaunavon reserves, helped by low royalty rates and thousands of potential places to drill on the flat land.
Indeed, the 16-year-old company cut its teeth developing the massive light-crude deposits that straddle the Canada-U.S. border. Now, though, it’s getting bitten by some investors unhappy with its direction.
A good indication of the discontent came on Friday when the faintest whiff of potential activist-investor interest, stemming from a U.S. newsletter that, really, only mentioned a rumour, fuelled an 8-per-cent jump in Crescent Point shares. Company officials have declined to comment on the report.
Prior to that, the stock had underperformed its peers by a country mile.
Year to date, Crescent Point had fallen 17 per cent, versus a 7-per-cent drop in the S&P/TSX capped energy index. The longer-term performance has been worse: even after its recent jump, the stock is down 58 per cent in three years.
If the company isn’t currently the target of an investor seeking to shake things up, it’s looking ripe to become one.
Despite its dominance in the Canadian Bakken, a frequent gripe among institutional investors has been the company’s trips to the equity market for financing, each time pricing shares lower than the last. Its most recent stock issue was in early September, garnering proceeds of $660-million, which it earmarked for beefing up capital spending.
The shares were priced at $19.30 apiece and have not recovered to that level, despite a hefty gain in crude-oil prices since.
Before the oil industry hit hard times, Crescent Point was a market darling, having handily navigated the transition to dividend-paying corporation from income trust. It reliably built up production, partly by snapping up rivals in its main operating regions. Equity financings were warmly received, as the shares shined in the afterglow.
But after the past three issues, starting in September, 2014, Crescent Point stock fell, leaving investors unamused.
Meanwhile, the company has reached a production level that makes it all the more difficult to achieve annual growth rates that investors had become accustomed to. With the recent stock issues, it’s even tougher for each share.
It has predicted average 2017 production of 172,000 barrels of oil equivalent a day, which would be up about 3 per cent from its 2016 target output absent any acquisitions. Capital spending is pegged at $1.45-billion, more than half of which will go to southeastern Saskatchewan operations.
Meanwhile, Mr. Saxberg has faced investor backlash over his compensation, and an apparent disconnect with shareholder returns. At last year’s annual meeting, investors owning about two-thirds of the stock voted against the board in a non-binding say-on-pay resolution.
The big question for Mr. Saxberg and Crescent Point now is, what’s the strategy for winning back investor favour? As last week’s stock-market action showed, there’s appetite for change among shareholders.
The company, which has a market capitalization of $8.8-billion and is not overly indebted, is widely held by both institutional and retail investors, so if there isn’t an activist actually amassing a position, it could be vulnerable to such a move.
It has some of the attributes that Canadian Pacific Railway Ltd. had in 2012, when Bill Ackman’s Pershing Square Capital Management bought up shares and forced big changes. They include commanding presence in its main operating area, a history of technical expertise and a stock price that drifted as competitors made gains.
Mr. Saxberg is due to give an update when Crescent Point reports fourth-quarter results on Thursday.
On the conference call, analysts and investors will be all ears as he lays out what he thinks the company must do to get back on track so he can put that $15-billion to work in the years to come.