In another energy market in a different time, Crescent Point Energy Corp. would have kept buying assets to boost production or been acquired by a rival at a premium price.
But it’s not an alternate universe, and the oil company and its investors do not have the luxury of either option.
What’s left is a rejig of the corporate strategy in hopes of persuading investors who had lost their patience long ago to be patient. This in an environment for energy stocks that is no brighter than it was at the start of the year.
In announcing the revised playbook on Wednesday, new CEO Craig Bryksa said all the right things about the collection of assets he inherits. He plans to sell a bunch of them to focus on the best money makers; he’s cutting 17 per cent of the staff; and he aims to reduce debt by $1-billion by the end of next year.
But the reaction was a sell-off to a new low. The stock is down 24 per cent since the start of 2018.
Crescent Point, an oil company that was designed for another era, finds itself in an uncomfortable position of having few alternatives but to shrink, at least for a while.
The company is in a specialized business that requires busy drilling and secondary recovery techniques to arrest steep production declines from its wells, especially in the Saskatchewan operating areas where it made a name for itself. It is a different game than the oil sands of Alberta or the fracking craze under way in the Permian region of Texas, where output gains come in big tranches. That’s where energy companies and investors have been focused.
Mr. Bryksa pegged Crescent Point’s production at 176,000 to 180,000 barrels a day in 2019. That's before any asset sales, and is in the neighbourhood of this year’s target. The company intends to sell oil and gas processing equipment and properties pumping 50,000 barrels of oil equivalent a day, with proceeds earmarked for debt reduction.
Oil prices have improved, but that hasn’t persuaded bidders to emerge, even as Crescent Point becomes more of a bargain. It’s just not a collection of assets currently in high demand. Any company would have a tough time convincing shareholders in such a negative market that such a buyout would be beneficial.
Recall that Crescent Point expanded in leaps and bounds during the income trust era, when its favourable cost of capital made it a frequent acquisitor. When it converted to a dividend-paying corporation, the company kept buying assets and sold shares to finance the deals. It's when the buying continued that investors began to grumble – the company priced the shares successively lower as the energy-industry downturn set in.
It all came to a head this year when Crescent Point became the target of activist investor Cation Capital, run by former investment banker Sandy Edmonstone. Cation held only a small stake in Crescent Point, but staged a noisy campaign to criticize the direction of the company and commandeer board seats for its own nominees.
The offensive failed in that regard, but long-time CEO Scott Saxberg stepped down a few weeks after the annual meeting, leaving Mr. Bryksa and the board with the task of convincing shareholders that better times are ahead.
It may be a long wait, suggests Menno Hulshof, analyst at TD Securities. In a note to clients, he points out that recent asset sales in Saskatchewan have fetched underwhelming prices, which could limit proceeds for Crescent Point as it goes about trying to offload properties.
More drastic measures to wring value from the company could be in the offing, said National Bank Financial analyst Travis Wood. He did not spell out what that means, and a full-on sales process would be a risky gamble in today's market.
As it stands, Crescent Point has a tough job selling investors on the idea that it’s a better buy than companies in hotter plays in the energy world.
Jeffrey Jones