By JEFFREY JONES
Tuesday, February 20, 2018
Alex Pourbaix didn't get the kind of honeymoon the market often affords new CEOs brought in to turn around a company that's stumbled.
But Cenovus Energy Inc.'s chief executive officer, who took the helm in November, is doing what he was hired to do - work to bring credibility back to the oil sands producer as it deals with the fallout from a massive acquisition that many investors still sneer about.
It was never going to be a quick and easy transformation, and despite the tough moves Mr. Pourbaix has already made - including cutting staff and plotting more asset sales - investors remain wary.
The stock price has continued to sputter. Shares of Calgary-based Cenovus have sunk 30 per cent in the past month and a half.
It's not all Cenovus-specific. As Mr. Pourbaix goes about getting the company back on track following last year's $17.7-billion takeover of ConocoPhillips Co.'s oil sands and natural gas assets, a difficult business environment is only making his job tougher.
For one thing, the Canadian industry's old bugbear - a gaping discount on crude from the oil sands compared with benchmark light oil - is casting a pall on Cenovus along with its rivals.
The wide spread, the symptom of tight export pipeline capacity, means the price of the bitumen the company is producing in growing volumes is falling as the rest of the energy world recovers, slicing revenues and souring investors on the industry as a whole.
Following its big takeover, Cenovus is much more exposed to the wide heavy-oil price spreads; it doubled its net oil sands production by acquiring ConocoPhillips's 50-per-cent interest in their partnership, but its capacity at a pair of U.S. refineries remained the same.
Mr. Pourbaix told analysts last week that he'd like to secure more refining capacity. But, he said, let's be realistic here: It will be a while before the company's balance sheet is back in comfortable enough shape to do such a deal.
Even after $3.7-billion of asset sales last year, a high debt level - $8.9-billion at the end of the fourth quarter - remains problematic.
This is why Cenovus is in tough with investors early in Mr. Pourbaix's tenure. It would not be fair, however, to say the company is still on its heels, as it was in the many months following the ConocoPhillips deal that sent his predecessor into early retirement.
The former pipeline executive is, rather quickly, checking off a laundry list of moves aimed at cutting costs and debt. It's likely that some of this tough medicine could not have been administered by the former managers, led by ex-CEO Brian Ferguson, partly because they engineered the deal in the first place.
As the new guy, Mr. Pourbaix has no personal capital invested in the initial deal, which was criticized at the outset for driving up debt and adding a whole new natural gas division with markets for the fuel in decline.
He's cut 15 per cent of the staff, sent key members of the previous management team packing, and, in last week's discussion about fourth-quarter results, said the company could put more assets up for sale, including some in the Deep Basin region of western Alberta that came with the ConocoPhillips deal. The reason: Cenovus has more places to spend money than money to spend.
The company also disclosed it wrote off nearly $900-million it has spent on an early-stage Alberta project called Borealis, conceding that it won't be developed any time soon, if at all.
It all adds up to a complicated clean-up operation under very unpleasant conditions and there's still one big risk for investors stemming from last year's deal.
As part of the payment, ConocoPhillips took 208 million Cenovus shares, and the period in which the U.S. oil major agreed to hang on to them has expired.
The potential sale has hung like a dark cloud, as investors worry about those shares hitting the market (ConocoPhillips said this month it still held the stake at year-end).
Mr. Pourbaix says Cenovus's strength remains its marquee assets, which are the Foster Creek and Christina Lake steamdriven oil sands projects. Those helped deliver a hefty jump in fourth-quarter earnings, despite all of the other issues he is grappling with.
"And, I think as we kind of work our way through some of the challenges and get this company's costs down and get the debt down, I expect that the market is going to start developing a better appreciation for the quality of the company," he told The Globe and Mail in an interview.
That appreciation is going to take a while to materialize after what shareholders have been through, and it's looking as if Mr. Pourbaix doesn't get the luxury of an easily impressed market as he works to gain it.