When oil prices plunged below zero, these CEOs bought up stocks in their own companies

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CALGARY – As investors search for the “Holy Grail” of management teams buying their own stock by the barrel, many have questions for oil chief executives that didn’t go on a buying spree when crude prices crashed in 2020.

Last year, stock valuations in the Canadian oil and gas industry fell to either multi-decade lows, or all-time lows as the first wave of the COVID-19 pandemic and an oil-price war between Russia and Saudi Arabia began.

As equity values started plunging in March 2020, chief executives in the energy sector continued to promote their companies as good long-term holdings, whose values were not accurately reflected on the Toronto Stock Exchange. Company disclosures filed in recent weeks now reveal which oilpatch CEOs were willing to follow their own advice and aggressively buy up shares in their own companies.

“For sure there was trepidation when we were going through that time,” said Grant Fagerheim, president and CEO of Whitecap Resources Ltd., who was one of the most active buyers of his own stock during the collapse.

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A year ago, as monthly oil delivery contracts rolled over on April 20, 2020, West Texas Intermediate oil prices fell to a previously unthinkable negative value of –US$37 per barrel.

On the day of negative WTI oil prices, Whitecap shares traded for $1.35 each, which is down 75 per cent from the company’s value at the beginning of 2020 before the COVID-19 outbreak.

While investors were selling, Fagerheim was buying. Over the course of 2020, he bought 226,394 Whitecap shares, boosting his holdings in the company by 8 per cent. In fact, disclosures show that in the two weeks from March 1 to March 12, Fagerheim bought 126,000 Whitecap shares.

The company’s share price bottomed a week later at 90 cents per share, and was up $5.67 by end of day on April 19, exactly a year after prices had fallen into negative territory.

“Once I was able to establish from our perspective that we were in a good space, we had a financially sound operational and financial plan, our leverage wasn’t too high, I believed that going forward we could make a difference,” Fagerheim said.

Institutional investors carefully watch for companies whose CEOs, management teams and directors buy their own stock because it shows an alignment with shareholders, said Laura Lau, senior vice-president and chief investment officer with Brompton Group in Toronto.

“If they’re willing to invest, they’re putting their money where their mouth is. They’re out there pitching, ‘my company is cheap, my company is great,’ well then, ‘how come you’re not buying it? You’re trying to convince me to buy it, but you’re not buying it?’” Lau said.

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The analyst said she is invested in all of her funds and her clients query her about it as it’s an important indicator. She expects the same type of alignment from the management of companies she invests in.

The Financial Post compiled data on common stock holdings of Canada’s 10 largest oil producing companies over the past year and found Baytex Energy Corp. CEO Ed LaFehr acquired the largest number of his own shares last year, at 357,899 shares purchased, followed by Fagerheim.

Filings show LaFehr bought thousands of shares of Baytex in the public markets in February, May and September and also exercised rights and options to further increase his holdings in January and July of last year.

The Holy Grail is a CEO that has a massive personal investment in his company, so you know with 100 per cent conviction that he is aligned along with you

Eric Nuttall, partner, portfolio manager, Ninepoint Partners

Proportionately, MEG Energy Corp. CEO Derek Evans increased his holdings by the largest percentage among the top producers. Evans bought 220,000 shares in MEG, a 164 per cent increase in his holdings over the course of 2020. Filings show Evans was buying in April and November 2020, after MEG shares bottomed at $1.22 each at the end of March 2020.

Imperial Oil Ltd. CEO Brad Corson, who took over the top job at the Calgary-based oilsands producer in Jan. 2020, held no common shares of Imperial at the end of last year, according to company disclosures. Insider filings show Corson did not buy any Imperial shares in the public market in 2020.

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Corson owns 87,758 common shares of Exxon Mobil Corp., which is the controlling shareholder in Imperial Oil. Imperial declined comment on Corson’s holdings in Imperial, beyond noting that he has three years to accumulate the minimum number of shares required for an executive of the company.

Some executives, such as Canadian Natural Resources Ltd. executive chair Murray Edwards and president Tim McKay bought 46,086 shares and 8,469 shares in their company, respectively, but those purchases didn’t result in a large percentage change in their holdings because both already own more than 1 million shares in CNRL. Edwards owns close to 22 million shares.

MEG Energy Corp. and Suncor Energy Inc. did not respond to requests for comment. Cenovus Energy Inc. and Enerplus Inc. declined requests for comment.

“The Holy Grail is a CEO that has a massive personal investment in his company, so you know with 100 per cent conviction that he is aligned along with you. Rarely do you get that,” said Eric Nuttall, a partner and senior portfolio manager with Ninepoint Partners in Toronto.

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“When things are darkest it’s very difficult to step up and buy stock. In a time of maximum uncertainty it’s very difficult to do,” Nuttall said, but added that he expected that company CEOs own large quantities of their own stock because they are paid millions of dollars per year.

Nuttall, who runs an actively managed energy-focused fund, has spent much of the last year noting that oil and gas stocks were undervalued and demanding that energy management teams both buy their own shares and set their companies on stock buybacks.

Financial Post

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