Renaissance Energy chairman Ron Greene must be wishing he could turn back time. Not that long ago, his company was the shining light of the oil patch -- a certified superstar with a high-flying stock and an enviable reputation. Now, however, Renaissance is widely seen as a troubled company with an uncertain future, a view reflected in its depressed stock price.
On the face of things, Renaissance should have plenty to crow about. Strong oil and gas prices produced a healthy fourth quarter, which boosted its full-year results substantially. It made a profit of $69-million, compared with a loss the previous year of $10-million, and in the fourth quarter its cash flow climbed 64 per cent to more than $160-million.
Unfortunately, this failed to impress the market much. Although the shares climbed in advance of the earnings report, they lost all that and more in the next two days and wound up at $11.70 -- lower than the stock has been in 10 years. It's also 50 per cent below where it was six months ago and 76 per cent lower than its high of $50 in 1997. The company's market capitalization of $1.7-billion is a long way from its peak of $5.8-billion in 1997.
In those days, Renaissance was a widely respected oil patch success story, a home-grown star run by its affable and unassuming CEO Clayton Woitas. While others ran around the globe looking for oil and gas in exotic places like Chile and Indonesia, Renaissance was the epitome of the dogged company that stuck to what it knew best: drilling hundreds and hundreds of wells a year. It was almost a manufacturing-style approach, but it worked.
At least, it worked for a while. Punching a lot of holes in the ground and hoping they last long enough to pay for the next few has its risks -- particularly in a place like Western Canada, which is what geologists call a mature basin, meaning there aren't a lot of big plays left. Renaissance wound up in a Red Queen's race, having to run faster and faster in order to produce the double-digit gains that justified its premium price.
Although the strategy worked brilliantly for many years, it couldn't last -- and neither could Mr. Woitas, who joined the company shortly after Mr. Greene founded it in 1983. The CEO announced his resignation in December, not long after the company's chief financial officer left. In its release last week, Renaissance also wrote down the value of its reserves by 16 per cent, as part of an industry move to more conservative accounting.
Mr. Greene acknowledged in a conference call that the company had failed to adapt. He said it was "abundantly obvious the business plan that served us so well for so many years is no longer appropriate," and that the "failure to recognize that has put us behind the eight ball by about two years." He said the company had been trying for some time to modify its approach, but "our conclusion is that there has been no significant move."
It remains to be seen, however, whether the new strategy proposed by the board -- aimed at what Mr. Greene called the "renaissance of Renaissance" -- will be enough to return the company to prosperity. Mr. Greene said he plans to move the company from a focus on short-term assets to more medium-term and longer-term assets, a shift he said could involve anything from property acquisitions to large-scale takeovers or mergers.
Over the next three years, Mr. Greene -- the company's largest non-institutional shareholder -- said he wants Renaissance to double in size and become one of the largest oil and gas producers in the world. It was clear from some of the irritated comments by institutional shareholders on last week's conference call, however, that many former supporters don't want to wait that long to finally see a return on their investment.
Several investors recommended a share buyback, while one said the company should put itself up for sale -- but Mr. Greene said that in light of depressed stock values not just for Renaissance but oil and gas stocks in general, he felt this wouldn't be in the best interests of shareholders. Based on its forecasts for this year, Renaissance is trading at less than 2.5 times cash flow, while its peers trade at four or five times.
In a larger sense, of course, Mr. Greene is right: Share buybacks are a short-term fix rather than a long-term investment, and the shift he plans for Renaissance makes a certain amount of sense -- but is anyone willing to wait that long? By his own admission, the company has more or less wasted the past few years, and is now well behind its peers.
However well-meaning his approach, the Renaissance chairman can hardly blame investors for losing patience, or for being skeptical when asked to wait even longer for the chance of a payoff. Readers can reach Mathew Ingram by fax at (403) 244-9809 or by e-mail at mingram@globeandmail.ca
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