Share buy backs do not serve Share HoldersShare buybacks are a destruction of Capital and Economic opportunity for Energy companies.
The buying back of shares, sends a 2% Royality to Justine Trudeau while at the same time evaporates capital off the balance sheet, limiting the growth and opportunity in the energy industry in Canada.
Share buybacks occur when the companies are generating large amounts of FCF and are considered by some as a return to the shareholders, but in my opinion, nothing could be further from the truth.
When you have the most FCF to buy back shares are when commodity prices are high, meaning you are buying back your shares when market conditions are good. Now when market conditions are bad you have blown the wad and are forced to reduce Capex.
Share buybacks slow down investment, investors buy energy companies because we think this commodity space has a future, not to watch oil companies put a cap on the industry and evaporate capital.
Time is money, and with billions of dollars of resources sitting in the ground that could provide significantly more returns to the shareholders, increase FCF, and a larger production base.
People do not buy energy companies; to watch them buy back their shares, this is only good for the long-term insiders that have a job at these companies and is not good for the shareholders of the company.
Really in Kelt case in point you witness growth in the NAV every year that demonstrates significant shareholder return. However, there is more that does not always show up in the reserve report, but they have confirmed the resource in place and have gained knowledge and insight into their play areas. This can only be done by investing capital and share buybacks don’t do that.
Most of these share buybacks is because management is not sophisticated, they don’t know how to grow the company and don’t want to give special dividends or increase the dividends for shareholders.
Even more disgusting is companies that on month are buying back shares, the next month issuing new shares (Under subscribed), writing down assets for fire sales, blow up their resource base, over pay for a new asset space, employ Eric Nuttal to pound the table that management has found religion, and when all the smoke clears hand a sign of VERITY on the company, and are not a Montney/Duvernay company with the best wells on the Planet.
I am comfortable that the value of Kelt is growing at an exponential rate, and that share buyback would simply add stress to the company, and the balance sheet, pay Trudeau, and evaporate Share Holder Capital.
IMHO