Oilpatch share buybacks drive record high totals on the TSX
Canadian oil and gas companies finding little love in the stock market are repurchasing their neglected shares, driving a rise in share buybacks that’s already reached a record high this year. Using scarce dollars to buy your own stock instead of investing to grow the business may seem wasteful to some, but observers say it makes sense if you have money in your wallet and find your shares in the bargain bin.
“As a CEO, the way I look at it is, it’s a cyclical business. Buying back your shares when you have good cash flow and a good balance sheet, when your shares are down to really low levels, is actually good business,” said Dale Dusterhoft, CEO of Calgarybased well completion company Trican Well Service Ltd. “But then when your multiples are up and you’re in an up cycle, using your capital to buy other things is good business as well.” Trican bought back 9.8 million shares in October after renewing its annual buyback program. It bought the maximum allowed 10 per cent of its stock for $119 million under its 2017-18 program. Some 627 million shares had been repurchased in 2018 for cancellation by 209 issuer companies as of mid-October, according to data provided by TMX Group, the operator of the Toronto Stock Exchange, at the request of The Canadian Press. That’s about 135 million more shares than in all of 2017 and well ahead of the previous record high of 557 million shares in 2007, according to statistics going back to 1989. Twenty-three Calgary-based companies involved in the upstream oil and gas sector accounted for about 184 million share buybacks this year, more than double the 76 million in 2017.
The boom in energy company share buybacks is linked to conditions in Western Canada, where a lack of pipeline capacity to carry away growing production has resulted in unprecedented discounts in oil prices versus U.S. benchmarks, said Eric Nuttall, senior portfolio manager at Toronto-based Ninepoint Partners. “We’ve had the greatest dislocation in history between the commodity and the stocks,” he said. “Energy stocks are trading at half of their historical multiples.”