OPEC will likely extend output deal, analysts say Bank investors to vote on giving bigger voice to smaller shareholders
Other options too painful for Saudis
FINANCIAL POST
CALGARY — The continued slide in oil prices is placing increased pressure on key OPEC members to once again intervene in the market and extend the production cuts they had initiated at the start of the year.
Futures contracts for West Texas Intermediate fell again on Thursday below $48 US per barrel, touching a four-month low of $47.30 US on concerns over high U.S. storage levels. Brent crude also slipped in Thursday trading to just above $50 US.
Market sentiment is also being hurt by analysts revising their price outlook to accommodate rising U.S. shale production. Tudor, Pickering, Holt & Co., a Houston-based investment bank, lowered its 2018 outlook for WTI by $10 to $65 US. Barclays analysts, for their part, predict oil prices will remain in the mid$50 US range in the second half of 2017.
Other analysts have trimmed their estimates for 2017 to below $60 US by the end of the year. U.S. oil producers, meanwhile, are expected to boost output by 1.2 million bpd over the year, according to Tudor, Pickering, Holt & Co.
The slide in price and surging non-OPEC output has heaped pressure on OPEC members, particularly key producer Saudi Arabia, who agreed to cut production last November in an attempt to lift oil prices.
The agreement to curb supplies initially sent prices above the $50 US level, calming investors. But recent price reversals will complicate discussions when the cartel meets in Vienna on May 25 to discuss whether it will extend its production quotas for another six months. The original six-month agreement expires in June. OPEC and nonOPEC members are meeting this weekend in Kuwait to assess compliance of the agreed 1.8 million bpd cuts.
RBC Capital Markets analyst Helima Croft said she expects OPEC to extend the cuts, as fears of a collapse in oil prices override concerns over a loss of market share.
When OPEC met in November to discuss the production cut, many members were struggling to contain growing civil unrest as falling oil revenues forced them to slash spending on social programs and other subsidies.
“These guys encountered $26 US per-barrel oil in January — they were worried about losing power,” Croft said by phone from New York. “There was a view heading into that November meeting that if they didn’t take action they’d be in the $30s US again.”
Other analysts also think OPEC will extend the agreement.
Citi Group expects an extension “because the other option would be too painful for the Saudis and all others in the deal .... By that criterion it’s a done deal and the cuts get extended.”
In an interview with Bloomberg News last week Saudi Energy Minister Khalid al-Falih said the cuts would be extended if crude stockpiles in June were above their five-year average.
Meanwhile, Saudi royals are banking on much higher prices for the IPO of its massive staterun oil giant Saudi Aramco, which they say is scheduled for 2018. On Wednesday, Saudi Arabia also suffered a credit downgrade from Fitch Ratings to A+ on worsening public and external finances on the back of lower oil prices.
The cartel also has other headaches to contend with. Despite compliance being well above analyst expectations, OPEC member Iraq is causing concern over whether it will meet its respective targets.
The country has said it is counting exports rather than production as its key metric within the quotas, which goes against the OPEC agreement. Iraq has boosted its production, while OPEC members Libya and Nigeria, which are exempt from the cuts, have also increased output.
Croft said much of the uncertainty around Iraq production levels is due to a lack of consistency between heads of state and the energy ministry. However in Iraq, as elsewhere, she says leaders are still primarily concerned with avoiding another price rout, which should be supportive of an extension of the OPEC deal.
“Oil ministers talk about how this is all about fundamentals, not about price, but from the standpoint of the people running these countries I think they are very concerned about price,” she said.
ARMINA LIGAYA
FINANCIAL POST
TORONTO — Investors at two of Canada’s biggest banks will vote soon on whether shareholders with smaller holdings should have a bigger voice when choosing directors for the board — a move that investor advocates say would, if successful, be a big step towards “shareholder democracy.”
The proposal, included in the proxy circulars of both Royal Bank of Canada and TorontoDominion Bank after being submitted by a shareholder of both banks, asks the banks’ boards to adopt a resolution enabling investors holding a three per cent stake (and meeting some other requirements) to nominate a director to the board and to include nominees on the banks’ proxy voting form.
That’s lower than the five per cent threshold, by an individual or a group, required under current Canadian law.
While there are existing mechanisms for shareholders holding five per cent of a bank’s outstanding shares to have their say on director nominations — such as requisitioning a meeting or submitting a shareholder proposal — those avenues can be costly and difficult to pursue, said Stephen Erlichman, executive director of the Canadian Coalition for Good Governance. His organization put forth a proxy access proposal back in 2015 similar to the one before TD and RBC, he said.
“There are various issues about how the system works today, and our proposal ... tried to make it a fairer system and a system that would work better for shareholders.”
RBC said in a release on Wednesday that the board is recommending that shareholders vote against the proposal for several reasons, “including that it would not be aligned with the statutory proxy access rules set out in the Bank Act.”
In its proxy circular, TD also recommended against the proposal, saying the measure “mirrors the evolving approach to proxy access in the U.S. without taking into account rights already available to the bank’s shareholders in Canada.”
“The board of directors believes that the action proposed is not necessary or in the best interests of the bank and does not support this proposal and recommends that shareholders vote against it,” TD said.
The proposal will be put forth at TD’s annual shareholder meeting at the end of the month, while RBC’s will be voted on in early April.
Andrew MacDougall, a lawyer specializing in corporate governance at Oslers law firm, says it’s notable that this is the first shareholder proposal to introduce a proxy access mechanism similar to what has been proposed in the U.S. He said it has the potential to be a “forerunner of future legislative changes in Canada.”
“Because it’s the first, it will be very interesting to see how investors react to it .... That may drive the degree of support that this initiative gets in Canada compared to the U.S.”
However, MacDougall says, there are existing provisions in the statute that are less complicated than what has been proposed. Because of those existing options, he doesn’t see any “meaningful benefit” to this proposal for significant investors in an organization.
Anita Anand, law professor at the University of Toronto and the special adviser to the Canadian Federation for the Advancement of Investor Rights (FAIR Canada), said she is disappointed that RBC is recommending against the proposal, but says it is significant that the bank is allowing it to go before shareholders for a vote (as the board has discretion and the option to reject it).
“I am optimistic, and I very much hope that other (public) corporations will follow suit, put these proposals in front of their shareholders, lessen the threshold percentage, and ... the baby steps will hopefully lead to larger scale reform,” she said.