Changes at the top at Vermilion Energy with new structure
Leadership shift happens as investors prepare for more oilpatch evolution
Vermilion Energy Inc. has abruptly changed its top leadership, announcing Monday that CEO Anthony Marino has left the organization and two former leaders — including his predecessor — are back to help run the company.
It comes during a tumultuous period for the petroleum producer and the Canadian oilpatch, and energy investors expect more changes to roll through the sector as companies adjust to lower oil prices, higher debt levels and the continuing fallout of the COVID-19 pandemic.
“I believe it’s the start of different things, which include management changes, assets sales, mergers and acquisitions — these are all going to start to develop,” said Rafi Tahmazian, a senior portfolio manager at Canoe Financial.
“This is a good time to rebalance the conventional Canadian energy sector.”
At Vermilion, a Calgary-based producer that’s active around the world, change has already arrived.
Co-founder and longtime
CEO Lorenzo Donadeo has been appointed executive chairman, while Vermilion’s former chief financial officer Curtis Hicks, who retired in 2018, is returning as president.
Instead of filling the CEO’S role with one individual, Vermilion will establish an executive committee with Donadeo, Hicks and several other senior executives to lead the company.
In a statement, Donadeo said the company would emphasize its core business principles, including a “conservative, longterm focus on balance sheet strength and capital discipline.”
The new leadership structure is permanent, with Donadeo involved in strategic decisions and Hicks running the day-today operations with business unit leaders, said Kyle Preston, Vermilion’s vice-president of investor relations.
“They are here to get Vermilion back on a strong footing,” he said.
Marino’s departure is effective immediately. “It was a board decision and Tony agreed to step down,” said Preston. Marino was not available for comment Monday.
Vermilion had long been viewed as an intriguing operator with a diverse international asset base, including operations in Canada, the United States, Europe and Australia.
Marino, the former CEO of Baytex Energy Corp., joined Vermilion as chief operating officer in 2012 and took over the helm in 2016 from Donadeo, who has served as board chairman since then.
Under Marino’s leadership, Vermilion grew its production and acquired Spartan Energy
Corp. in 2018 for $1.4 billion. In the first three months of the year, Vermilion produced an average of 97,000 barrels of oil equivalent per day, and posted a net loss of $1.3 billion.
Like most producers, it has been battered by the sharp drop in oil prices this year, which briefly sank into negative territory in April and now hover around US$34 a barrel.
As cash flow levels have fallen, Vermilion cut its planned capital spending and reduced its dividend in March, before suspending the dividend last month.
Its share price, which traded above $48 a share in July 2018, closed at $6.90 on Monday, down 25 cents.
“One of the big key sticking points always for the company with inventors here was this insatiable desire to maintain the dividend level that was arguably too high,” said analyst Jeremy Mccrea at Raymond James.
“Investors were starting to get frustrated with the balance sheet of the company.”
In a note, analyst Michael Dunn, who provides research coverage on Vermilion at Stifel Firstenergy, viewed the CEO change as a desire by the board to re-establish its past principles, including maintaining a conservative balance sheet and making key corporate decisions by committee.
“The organization is doing a little bit of a reboot and hoping to refresh the story and bringing in gentlemen that the market will be very familiar with,” added analyst Patrick O’rourke of Altacorp Capital.
While Vermilion operates in a number of countries, the company is not looking to sell assets or change its operating focus, Preston said. Instead, reducing debt “is the No. 1 priority,” he added.
The company had about $2.1 billion of net debt at the end of the first quarter. As oil prices dropped, Vermilion cut up to $100 million out of its capital budget earlier this year, trimmed operating expenses and eliminated the dividend, saving about $420 million a year.
Eric Nuttall, a senior portfolio manager with Ninepoint Partners, said the company had long been viewed as prudent fiscal managers with a geographically diversified asset base, but the “bullish thesis” began to change after the Spartan deal, as debt levels increased and questions centred on its dividend.
“They came into the downturn with more financial debt than they should have had. So that has impaired the share price more than others,” said Nuttall.
It’s not the only company that will be making significant changes in the months ahead. While oil prices have rebounded recently, they’re still below profitable levels for most companies.
The S&P/TSX Capped Energy Index has rallied by 60 per cent in the past two months after plunging sharply as oil prices tumbled. However, it still remains down 46 per cent since the start of this year.
“Investors think we’ve come off the bottom, but they are still looking for what the catalyst will be to dramatically improve both the operating and the share price performance of the energy sector companies,” said Michael Tims, vice-chairman of Matco Investments.
“That all (adds) up to a picture that’s subdued, but at least not as sombre as it looked a few weeks ago.”
For Tahmazian, the changes at Vermilion will likely be the first of many shifts in the oilpatch as companies adapt to a tougher environment.
“We are in a world today where these businesses are making big sweeping decisions,” he said.
“The investment community wants to see that it’s not the same thing coming out of this. So what did you do to make yourself different?”