CALGARY – Canada's oil and gas company found little love in the stock market that bought back their neglected shares, prompting a rise in share buybacks that had hit record highs this year.
Using a rare dollar to buy your own shares instead of investing to develop a business may seem futile for some people, but observers say it makes sense if you have money in your wallet and find your shares on cheap trays.
"As a CEO, the way I see it is a business cycle. Buying back your shares when you have good cash flow and a good balance sheet, when your stock drops to a very low level, is actually a good business," said Dale Dusterhoft, CEO from the Calgary well completion company, Trican Well Service Ltd.
"But then when your multiples go up and you're in a rising cycle, using capital to buy other items is good business too."
Trican bought back 9.8 million shares in October after renewing the annual repurchase program. It bought the permitted maximum of 10 percent of its shares for $ 119 million under the 2017-18 program.
About 627 million shares were bought back in 2018 for cancellation by 209 publishing companies in mid-October, according to data provided by TMX Group, operator of the Toronto Stock Exchange, at the request of The Canadian Press.
That's about 135 million more shares than in all 2017 and well above the previous record high of 557 million shares in 2007, according to statistics will return to 1989.
Twenty-three Calgary-based companies involved in the upstream oil and gas sector contributed around 184 million share repurchases this year, more than double the 76 million in 2017.
The explosion in purchasing shares of energy companies is linked to conditions in Western Canada, where the lack of pipeline capacity to bring increased production has resulted in unprecedented discounts in oil prices versus US benchmarks, said Eric Nuttall, senior portfolio manager at Ninepoint-based in Toronto. Partner.
"We experienced the biggest dislocation in history between commodities and stocks," he said. "Energy stocks trade in half of their historical multiples."
The recent decline in West Texas Intermediate traded in New York to the mid-level of US $ 50 per barrel from a peak above US $ 75 in early October increased the risk of a lower return going forward and made the buyback less attractive than just entering " bunker mode "and conserving capital, said Nuttall.
"But in a higher commodity price environment, which means like US $ 60 WTI, and a more normalized differential, if the stock price does not reflect value, it is better to repurchase your own shares rather than risk drilling your own well," he say
The attractiveness of repurchase is not lost in oil and resources Canada Natural Resources Ltd which on November 1 launched a new capital allocation strategy that requires half of all future cash after capital expenditure and dividends are spent on repurchases, with the remainder to pay off debt.
The company bought 20 million shares on September 30 at a cost of $ 874 million under a plan approved last spring to repurchase up to 61 million shares over the next year.
Deputy executive chairman Steve Laut said at a conference call "significant increases" in repurchases created "value for shareholders under current market conditions" – on November 1, the company's shares closed at $ 37.84, down 16 percent from the previous 12 months.
Earlier this month, Suncor Energy Inc., Canada's largest oil and gas company based on market capitalization, said it had agreed to increase the current repurchase program to five percent of its shares from three percent.
This spent $ 1.98 billion to repurchase 39 million shares under the program between last May and November – the upgrading program would cost another $ 1 billion if fully implemented.
In theory, reducing the number of outstanding shares in a company increases the value of the remaining shares – it must increase investor steps such as earnings per share and production per share and therefore causes a higher market price for each share.
That's not a successful way for Trican.
Despite buying and canceling 34 million shares in the 12 months ended September 30, the share price lost half of its value, down from $ 4.56 to $ 2.31.
Dusterhoft admitted "mixed feelings" about the results but said he still believes buybacks are a strategy that will provide good returns to shareholders in the long run.
He blamed the misery of the Trican stock price on a general sell-off in energy service company shares related to the prospect of poor drilling in Canada because producers limit spending on exploration.
"If the share price stays the same, they will get a 10 percent yield during that period. I think the only negative we see is the market decline over the past year."
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The company mentioned in this article: (TSX: TCW, TSX: SU, TSX: CNQ)
And Healing, The Canadian Press