RE:Debt, buybacks et alPabloLafortune wrote: For sake of clarity, here are the #s as I understand them to be:
Net debt is currently 15.7B. The company has stated that once it reaches the $9B net debt floor, it will return 100% of free cashflow to shareholders. Therefore, we are $6.7B from that target. In 2021 and 2022, the company has re purchased 5.7B worth of stock. Had they used those funds to repay debt,we would only be $1B away from the $9B debt floor. In Q2 the company paid $657M in dividends, bought back $2.6B of stock and repurchased debt worth $1.28B for a total of $4.5B. Therefore, it is reasonable to state that absent buybacks the debt floor would be reached already ie free cashflow in July was at least $1B. If (it won't be) Q3 was as good as Q2, and all free cashflow was paid to shareholders, then shareholders would receive $3.5B in dividends or (based on 1,522,000,000 share count as of Dec 31 2020) or $2.30 a share - for the quarter. Q4 dividend in this scenario would be $2.95 a share (if profitability was the same as Q2). IMO, the range of annual dividends in this scenario would be $10 to $12 a share. This excludes any asset sales, acquisitions, etc...At a $40 share price,, we're looking at a dividend yield of 25-30%.
Unfortunately, they did do those buybacks. If Q3 and Q4 come in as good as Q2 (probably won't), that would leave $7.8B available to repay debt versus $6.7B required to reach the debt floor. Therefore, if they stop buybacks and focus exclusively - save for the dividend - on reducing debt, they should reach the debt floor by December 31 esp. if we include the previously announced asset sales (offshore, wind and solar farms). Which means all of 2023 free cashflow would be returned to shareholders in the form of dividends (in this scenario). We would have missed out on 5 months of additional dividends or guess of $5. Btw, share count is now 1,423, $10 a share is thus $14.2B or $3.5B of free cashflow required vs $4.3B in Q2. Eminently doable IMO.
Guess you are assuming that they could retire all that debt without paying any redemption penalties?? Just sayin....
But what is the underlying message in all this coming from the company?
They are essentially saying that they consider the best use of their FCF is to retire shares and not pay a 4.75% dividend on the retired shares and pay off debt at similar interest rates as opposed to investing that money in growth businesses that on a risk adjusted basis could return 5-15%.
And some people wonder why investors would rather put their money into other companies?
As I mentioned in previous posts, I have recently bought an underweight position in SU. Unless, the company changes its approach which you outlined quite eloquently in your post, I am not in this for the long term. I see oil prices now down near what I predicted months ago and agree with Migraine that the balance of probabilities is that we will see a rise in oil prices back around 100-105 sometime in the next few months. I also see the potential, along with Obscure, that the pressure from Elliott may yield some gains through unlocking value of PetroCanada and possibly the four refineries which could provide a short term spike in the SP.
If it wasn't for the potential of these shorter term potentials, I would still be on the sidelines. If management were to change its tune and decided to use the tremendous FCF of the company and turn SU into a growth company, I would be in it for the long term and would probably be invested at market weight but sadly I don't see that happening and given the SP of SU relative to its metrics I don't think I am alone in feeling that way.