Penn West chief executive officer Murray NunnsTODD KOROL/Reuters
Four senior executives abruptly left Penn West Petroleum Ltd. in a management shakeup Tuesday as the Calgary energy firm joins the growing ranks of Canadian resource companies taking action to kick-start underperforming operations and flagging stock prices.
Penn West is in the midst of selling $1.3-billion worth of assets in order to reduce its debt load, keep its dividend intact and proceed with development plans. Penn West on Tuesday said it must now focus on making its production reliable and reducing the amount it spends to extract each barrel of oil.
"If you look at the overall mix of the company, we just did not have been enough engineering strength at the top of the organization. Our aim is really to strengthen that end of our bench significantly," said Penn West chief executive officer Murray Nunns, in explaining the changes that were made to the company's management.
"The one side of our operations that still continued to underperform was some of our key execution areas, and we needed to strengthen that side of the business," Mr. Nunns said in an interview.
Corporate boards are no longer showing endless patience with their executives, and several companies this year have pushed aside leaders in a bid to improve results.
Nexen Inc., Talisman Energy Inc., Barrick Gold Corp., and Kinross Gold Corp. all ditched their CEOs this year.
While Penn West's Mr. Nunns survived the management purge, the board's house-cleaning shows it is still willing to exercise its power when the company's plans are not unfolding as well as planned.
Shares of Penn West, a major energy producer, have long suffered despite firm prices for oil. The stock slumped 3.5 per cent Tuesday to $11.19 a share, down from levels above $40 in 2006.
Penn West has assets all across Western Canada, including oil sands assets it shares with a Chinese investment firm and a natural gas shale project it shares with Japan's Mitsubishi Corp. Penn West late Tuesday reached a $400-million deal with Franco-Nevada Corp. to sell a royalty interest in the Weyburn oil field in Saskatchewan.
In announcing its changes, Penn West cited problems with execution and poor capital efficiency. The highest-ranking executive Penn West let go was Hilary Foulkes, who served as the company's executive vice-president and chief operating officer.
The company has struggled when constructing and maintaining facilities, keeping its production levels strong, and sorting out how to extract oil at an acceptable cost, Mr. Nunns said.
In addition to Ms. Foulkes, other officials that left Penn West were: Thane Jensen, senior vice president, operations engineering; James Burns, vice-president, corporate planning; and Wendy Henkelman, vice-president, treasury. Mr. Nunns said any time there is a "shift of this magnitude of this type in your management team, there is board alignment."
Ms. Foulkes was the architect behind China Investment Corp.'s major investment in Penn West, which helped tidy up the Canadian company's balance sheet. She will be replaced by an engineer, Mr. Nunns said. He expects the corporate planning and treasury positions will be filled internally. Former COO David Middleton is now the interim head of operations engineering.
Ian Hardacre, head of Canadian equities with Invesco Canada in Toronto, said he's pleased to see directors setting performance deadlines of around three to five years.
"The higher-quality boards are looking at results and the results of a lot of companies have been pretty lacklustre for a number of years," he said. "I think they should be more bold. They have a certain accountability to make sure the strategy that they've agreed with is executed on. It is time for a lot of these boards to stand up and take notice of underperformance."
Penn West lost $67-million in the third quarter, which it reported Friday, compared to a profit of $138-million in the same quarter last year. Its funds flow, which is crucial because it is used to assess the company's ability to pay dividends and cover capital plans, dropped to $344-million from $348-million, while its debt climbed.
Penn West hopes to have its new team in place before it releases its 2013 budget in December or January. But Rob Lauzon, a senior portfolio manager and energy specialist at Middlefield Group in Calgary, said investors still need to be patient given the internal disruption.
"It takes a big effort to turn around Penn West," he said. "These types of actions are necessary when things aren't working, but things haven't been working for" over a year.