Cenovus Energy Inc. shares sank to new lows as long-time chief executive officer Brian Ferguson unexpectedly announced his retirement in the midst of a push to placate investors battered by the company's poorly received multibillion-dollar deal with ConocoPhillips Co. this year.
The decision by Mr. Ferguson to leave while Cenovus struggles to defend its decision to buy $17.7-billion worth of oil assets in a price downturn created greater uncertainty for the Canadian oil sands company Tuesday – even as it announced it would step up cost-cutting measures, and asset sales to pay down the company debt load.
Some questioned why he is departing at such a key juncture, or how much a hostile market reaction played into the decision Mr. Ferguson will retire as CEO and step down from the board by the end of October, but would stay on as an adviser until March. No successor was named but Cenovus said it would immediately begin an internal and external search for Mr. Ferguson's replacement. The company said it was his decision to retire, in part because the 60-year-old wants to spend more time with family.
"I'm absolutely committed to making sure that we deliver on the divestitures to delever our balance sheet, and I'm absolutely committed to a smooth transition," Mr. Ferguson said.
Cenovus shares have plunged since March when it announced the acquisition of oil sands and natural gas assets from Houston-based ConocoPhillips, reflecting concerns the company paid too much and has piled on liabilities in a shaky market. Speaking at an investor day in Toronto, Mr. Ferguson acknowledged it has been a "trying time."
On Tuesday, shares fell on the Toronto Stock Exchange, closing at $9.44, down 8 per cent on the day.
The drop came even as Mr. Ferguson sought to assure investors that the high debt load is only temporary, and the years ahead will see an improved balance sheet with investor returns such as dividend hikes flowing from a strong asset base. Shares of Cenovus were above $17 before the ConocoPhillips deal was announced.
"I'm obviously very disappointed in the stock price – there's obviously been a number of macro things that have been unfolding, as well," he said, as another decline in crude prices hit the TSX energy index Tuesday.
Cenovus rolled out a five-year strategy update saying it aims to generate 14 per cent annualized free funds flow growth through 2021. The company said it would boost production at a 6-per-cent annual growth rate, assuming a West Texas intermediate oil price of $55 (U.S.) a barrel.
But reducing debt remains the company's biggest priority. Mr. Ferguson said Cenovus expects it can complete $4-billion (Canadian) to $5-billion of asset sales this year – up from the previous $3.6-billion target. He said the sale of Pelican Lake and Suffield sites could be announced by the next quarter, and Cenovus is now preparing to sell Palliser assets in Alberta, and its Weyburn carbon capture and enhanced oil recovery operation in Saskatchewan.
Cenovus also took pains to reassure investors that its investment in ConocoPhillip's Deep Basin assets, seen as a departure from Cenovus's expertise in northern Alberta's oil sands, is sound strategy. The company also said it will bolster its hedging strategy, and find a further $1-billion in cost reductions – including job cuts – in the next three years.
However, there is skepticism Cenovus can execute on the sales as oil continues to weaken, and following a number of disappointing Canadian energy sector deals where homegrown companies have picked up assets from departing foreign players. Cardinal Energy 's stock price has dropped more than 20 per cent this month since the company said it would pay would pay $330-million to buy light oil assets in Alberta and Saskatchewan from Apache Corp. of Houston.
"People are wondering who is going to buy the assets," Laura Lau, a senior portfolio manager at the Brompton Group, said about the Cenovus properties for sale.
Mr. Ferguson has headed the company since it launched in 2009. He also sits on the board of Toronto-Dominion Bank and is a member of Ottawa's Advisory Council on Economic Growth.
Cenovus maintains that its commitments related to the transition – including divestitures, Deep Basin integration and additional cost-cutting – are near-term and well under way. Even after he steps down as CEO, Mr. Ferguson's advisory position will have him playing a key role well into next year.
Ms. Lau said the question is whether Mr. Ferguson just retired, or whether he was pushed to make a hasty exit. She expected the market to react positively to Mr. Ferguson's retirement, as she said the ConocoPhillips deal has damaged his credibility. However, she thinks the market still didn't like the push to sell legacy assets more quickly in what clearly is a buyer's market.
"Part of the problem is obviously they didn't do any planning. It looks like they're looking outside for somebody," Ms. Lau said.
"You have a five-year plan, but the person who put it together is not going to execute it. So what's the point of the investor day?"
With a file from Mark Rendell in Toronto