Varcoe: Oilsands succession plan — Pourbaix to step aside as Cenovus CEO

Succession plans are an important element for a company’s long-term success.

On Thursday, oilsands giant Cenovus Energy proved the point, rolling out a new leadership strategy and announcing CEO Alex Pourbaix will step aside this spring to become the company’s executive chair.

Chief operating officer Jon McKenzie, who played a key role in the company’s blockbuster acquisition of Husky Energy in 2020, will take over as CEO, while current chair Keith MacPhail will retire from the board at the annual meeting in April.

It marks the end of a transformative period with Pourbaix in charge for almost six years, although he will still have a hand in the company’s future.

The 57-year-old executive, one of the most vocal oilpatch leaders, will also spend more time promoting Canada’s energy sector and continue advocating for the Pathways Alliance.

The group of large oilsands producers is examining a multibillion-dollar plan that would see its members reach net-zero emissions by 2050.

“While I could have stayed on in the role for another year or two, Cenovus is in really great shape, and I think Jon has earned the right to lead Cenovus,” Pourbaix said Thursday on a fourth-quarter earnings call.

“A thoughtful and measured succession plan is a hallmark of a well-managed company.”

A former pipeline executive at TransCanada Corp., Pourbaix took over as Cenovus CEO in October 2017 during a turbulent period.

He replaced retiring chief executive Brian Ferguson and quickly declared he was on a mission to drive down costs and deleverage the company’s balance sheet. At the time, Cenovus was carrying about $12 billion of debt.

Pourbaix’s appointment came after an acquisitive period for Cenovus, punctuated by the mammoth $17.7-billion purchase of ConocoPhillips’ assets in Western Canada in March 2017.

The company’s stock price tumbled to $9 a share by July 2017 from more than $15 just four months earlier. (On Thursday, Cenovus shares closed at $24.85, down $1.16, on the Toronto Stock Exchange.)

Pourbaix soon made his mark by showing capital discipline, cutting costs — including hundreds of jobs in 2018 — and later leading the company through its $6-billion acquisition of Husky Energy during the first year of the pandemic.

The all-stock transaction turned Cenovus into a large integrated producer with upstream oil and gas production, and downstream refining and marketing assets in North America.

“Alex is one of the most competent CEOs in Canada and the best champion of the sector. This was very much on his own terms,” said Eric Nuttall, a senior portfolio manager with Ninepoint Partners, an investor in Cenovus.

Pourbaix said Thursday that after taking the job in 2017, he told the company’s board he intended to stay for five to seven years. Now, he’s nearly reached the midpoint of the timeline.

“It’s not lost on me, Jon and I aren’t too far apart in age,” he said. “And if I were to decide to stick around for another two or three years, I could really put Jon in a situation where he might ‘time out’ and not be able to have a good run at leading the company.”

Pourbaix has been one of the most prominent CEOs in the country’s oilpatch, previously serving as chair of the Canadian Energy Pipeline Association and Canadian Association of Petroleum Producers.

He’s spoken out on pivotal issues such as the lack of pipeline capacity in Canada, Alberta’s contentious production curtailment program in 2018, Ottawa’s emissions reduction plans and the importance of global energy security.

More recently, Pourbaix has been at the forefront of the Pathways Alliance’s efforts to reach net-zero emissions.

He’s pressed for federal and provincial incentives as the group looks to embark on building a large-scale carbon capture, utilization and storage (CCUS) network in Alberta that’s estimated to cost $16.5 billion.

(Coincidentally, Alberta announced Thursday it’s proposing to work with Ottawa on a co-ordinated incentive package for CCUS developments.)

Michael Tims, the vice-chair of Calgary-based Matco Investments, said Cenovus was reshaped under Pourbaix’s leadership.

“The proof is in the pudding. You have a share price that more than doubled in his tenure and the debt has been dramatically reduced,” Tims said in an interview.

“You also have to say, he’s been an eloquent and reasoned advocate for the Canadian energy industry.”

Thursday’s announcement also underscores it’s “absolutely critical” that company boards and senior management have a succession plan in place to provide stability when the leadership changes, Tims added.

McKenzie, who joined Cenovus in 2018 as its chief financial officer, had previously served as CFO at Husky Energy. The 55-year-old also worked as the chief financial officer at Irving Oil.

“Jon’s fingerprints are on the strategy, too, and he’s part of the whole success of turning Cenovus around,” said analyst Phil Skolnick of Eight Capital.

Pourbaix and McKenzie have worked closely together over the past five years, with the chief operating officer focused on the company’s day-to-day operations while the CEO has spent more time on the Pathways initiatives.

“I don’t think you’re going to see much of a change,” McKenzie said.

On Thursday, Cenovus also released its fourth-quarter results, posting net earnings of $784 million, dropping from $1.6 billion in the previous quarter.

The company’s net debt fell to $4.3 billion by the end of December, down from $9.6 billion a year earlier.

While Cenovus now expects to reach its $4-billion debt floor target later this year, it should go hunting for potential deals, said Cole Smead, CEO of Smead Capital Management, an investor in Cenovus.

“The one thing we want Jon to continue to do is to be aggressive,” he said. “There are really good assets sitting out there.”

Meanwhile, Suncor Energy is expected to announce the appointment of a permanent CEO in short order, coming after former head Mark Little departed last July.

On Wednesday, interim CEO Kris Smith told analysts the company’s board is going through the selection process. It is expected to make an announcement sometime this month.

Chris Varcoe is a Calgary Herald columnist.

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