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Spring cleaning in winter Two oil sands-weighted Canadian companies shake up executive ranks; analyst says departures all point to productivity problems Gary Park For Petroleum News
The New Year has arrived with a resounding thump in the oil towers of downtown Calgary, with investors purging the upper echelons of two companies with large stakes in the oil sands.
There is nothing linking the events, but the departed heads of Nexen and Connacher Oil and Gas might have reason to ruefully compare notes over a pint of beer.
In both cases, drastic action has been looming for months and culminated in the same week as directors sent Nexen chief executive Marvin Romanow and Connacher boss Richard Gusella packing.
There was no easy transition, no bland announcements. They were both fired, “effective immediately.”
And a bunch of other senior executives accompanied their CEOs out the door.
In the absence of any explanations, employees and the outside world are left searching for answers, said Brian Reidy, managing consultant for Towers Watson a human resources firm in Calgary.
He said that when a chief executive makes an unseemly departure the factors usually involve strategy, direction, company image and leadership, all of them pointing to productivity problems.
Nexen has been under prolonged and growing pressure to tackle its floundering share value, which has fallen about 20 percent in the last 12 months, and its uneven operational performance; Connacher has faced similar woes, losing more than two-thirds of its stock price over five years.
Gusella dumps execs Amid a raging debate over what direction Connacher should be taking and increasing pressure to seek a buyer, Gusella started out 2012 by dumping his president and chief operating officer, chief financial officer and vice president of corporate development, taking over the company reins.
“With no replacements lined up, it just creates a lot of uncertainty,” said CIBC World Markets analyst Andrew Potter.
Complicating matters, Gusella also announced that his debt-laden company was abandoning its search for joint-venture partners after having turned down an unsolicited buyout offer in December, claiming Connacher could accomplish its expansion plans “without any new financial arrangements.”
In the process he shrugged off growing shareholder pressure to explore outright sale of the company.
Gusella said in early January that the timing was not right for Connacher — with a market value of about C$385 million and long-term debt of C$865 million — to sell itself.
Gusella dumped He apparently failed to heed the warning signs, with one shareholder declaring that “strong investor activism” would likely boil over within a few days.
A week later Gusella was ushered out the door, relinquishing all of his roles, including chairman, president, chief executive officer, chief operating officer and director.
“Investors wanted to see the joint venture done,” Potter said. “The company has too much leverage, but not enough cash resources to develop their oil sands assets. Their debt-to-capital ratio is eight times. In any rational world that is not a good balance sheet.”
He said Connacher is now looking to some national oil companies, majors and possibly financial companies to perform a rescue operation.
Total bid for Nexen rumored Nexen, whose reach extends beyond Canada to the Gulf of Mexico, the North Sea, offshore West Africa and Yemen, has been on a short fuse for the past year, with speculation rife that France’s Total was prepared to bid C$35 a share, about double the company’s recent trading range.
A company statement did not specify why Romanow left after 13 years with Nexen, although Chairman Francis Saville said the board is “committed to closing the value gap for our shareholders through execution of our oil sands, conventional offshore and unconventional gas strategies.”
The company has set 2012 production guidance at 185,000-225,000 barrels of oil equivalent per day, compared with its forecast 200,000-215,000 boe per day for 2011.
FirstEnergy Capital analyst Mike Dunn said in a note to clients that the management shake-up indicates Nexen’s board is holding executive level management accountable for performance.
He said that given the close ties Romanow had with the operationally challenged Long Lake oil sands project it is “safe to assume that continued disappointments there played a role in these departures.”
Three years after startup Long Lake — 65 percent owned and operated by Nexen, with the remaining 35 percent sold last year for C$2.5 billion by OPTI Canada to China’s CNOOC — has been unable to reach even half of its design capacity of 72,000 bpd.
In late November, Nexen struck joint-venture deals with CNOOC to develop some of its properties in the Gulf of Mexico, where it produces about 20,000 boe per day, and with Japan’s Inpex, which is paying $700 million for a 40 percent share of a shale gas play in British Columbia’s Horn River basin, possibly setting the stage for LNG exports to Asia.
These arrangements could even point to an Asian-initiated takeover offer, especially now that China has expanded its presence in the oil sands from minority roles and joint ventures to PetroChina’s bid for outright ownership of one and possibly two projects owned by Athabasca Oil Sands Corp.
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