The Caisse de depot et placement missed the opportunity to reap hundreds of millions for its depositors by shedding 80% of its shares of oil stocks in its portfolio before the oil price spike of 2022.
Posted at 6:00 a.m.
The Press arrived at this observation by following the evolution of the five largest holdings of the institution in oil companies listed on the stock exchange since December 31, 2019.
Getting out of oil early was a costly and misguided decision, argues a Toronto portfolio manager.
“In this period of unprecedentedly high free cash flow, Caisse depositors cannot take advantage of the appreciation in the price of shares in the oil sector, which is based in particular on the payment of dividends and share buybacks at record highs,” said Eric Nuttall, portfolio manager and partner at Ninepoint Partners, which manages $8 billion in assets.
“Canada produces oil to the highest environmental standards in the world,” he continues. With oil demand likely to grow for at least the next decade, the lack of investment by entities like the Caisse is only blocking the growth of Canadian production, and the latter is therefore ceding market share to d other countries that do not share our high ESG standards. These divestment actions therefore increase, and therefore do not reduce, the environmental impact of the growth in global production while reducing the tax revenues that benefit all Canadians. »
On the side of the coalition Sortons la Caisse du carbon, which since 2018 has published an annual report on the Caisse’s assets in fossil fuels, we make a diametrically opposite reading.
“Overall, the decision to get out of oil is an excellent ecological and financial decision,” argues Sébastien Collard, spokesperson for the Sortons la Caisse du Carbon coalition. According to him, the global demand for oil will quickly decline with the growing popularity of electric vehicles.
He adds that oil stocks have underperformed the stock market in general 9 times over the past 11 years, 12 if we include 2022 which is not over. According to Mr. Collard, the price spike in 2022 was unpredictable because it was caused by an abnormal event (Russia’s invasion of Ukraine).
Significant shortfall
The Fund has officially announced its intention to exit oil in September 2021, with oil stocks then constituting around 1% of its assets. In fact, it had started in 2020 to shed its oil titles.
At the end of December 2019, the Caisse held stakes worth C$4 billion in 5 companies: Total, Exxon, Canadian Natural Resources (CNQ), Suncor and CNOOC, of China. This information is taken from the annual report of the Quebec institution.
On that date, the Caisse held precisely 8.6 million shares of Exxon, 18 million shares of CNQ, 111 million of CNOOC, 15 million of Total and 13 million of Suncor.
At current prices, the 18 million shares of CNQ would be worth $1.2 billion and the 8.6 million shares of Exxon would be worth more than $1 billion (Canadian).
Instead of the 2.2 billion, the Caisse is estimated to have obtained a maximum of 1.3 billion by selling the bulk of its shares before 2022.
This estimate is based on the institution’s quarterly statements to the United States stock market watchdog. Values have been converted to Canadian dollars at today’s rate.
Sell at the wrong time
In 2020, one of the worst years in the oil sector with an average WTI barrel price of around US$40, the Caisse sold 78% of its position in Exxon and 92% of its shares in CNOOC. It also disposed of 13% of its share in Total.
In 2021, the Caisse continued its shedding operation by selling 70% of its stake in Canadian Natural Resources, or just under 13 million shares, at a price of around $46. Less than six months later, CNQ shares were selling for more than $80.
Last February, the head of liquid markets at the Caisse de depot, Vincent Delisle, announced that the institution would take advantage of the improvement in the price of a barrel to get out of oil completely. On this occasion, he failed to say that the Fund had sold 80% of its oil shares before 2022.
The Caisse has done better with Suncor by waiting for 2022 to liquidate its shares (see next tab), but this will not be able to make up for the shortfall resulting from the hasty sales of CNQ, Exxon, CNOOC and, to a lesser extent, Total.
No remorse at checkout
“We are confident that our decision was the right one from a long-term investor’s point of view,” said the Caisse de dépôt by email. The future is in the sustainable economy and we must all contribute to solutions to climate challenges. »
The manager recalls that the return of oil producers has been pitiful since 2018, at 0.4%. “Very low-carbon-intensity assets show a much higher return than high-intensity assets in our stock market portfolio,” specifies the Caisse. This emphasizes that the oil shares, taken as a whole, were not sold at a loss.
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Some dates
2012 The Institute for Research in Contemporary Economics (IREC) is asking for a debate on the place of oil in the Caisse’s portfolio.
February 2017 The leader of the Parti Québécois at the time, Jean-François Lisée, asked the Caisse to get out of fossil fuels.
October 2017 La Caisse announces its intention to reduce the carbon intensity of its portfolio by 25% in the medium term and to increase its low-carbon investments by 50% by 2020.
September 2021 La Caisse announces its exit from oil extracting companies by 2022, but retains its assets in the gas and pipelines sector.
February 2022 Vincent Delisle, head of liquid markets at the Caisse de dépôt, announces that the institution will take advantage of the improvement in the price of a barrel to get out of oil completely.
La Caisse is no longer a shareholder of Suncor or Canadian Natural Resources
The Caisse de depot et placement du Québec has just sold its last shares of Suncor and Canadian Natural Resources.
A document filed Friday with the Securities & Exchange Commission by the leaders of the Fund reveals that the Quebec institutional manager no longer held any shares of two of the largest energy producers in the country, at the beginning of July.
This means that the Caisse sold its remaining shares of Suncor and Canadian Natural Resources during the spring months.
At the beginning of April, the Caisse still held 3.8 million shares of the Calgary company that owns the Petro-Canada gas station network. This block of shares then had a market value of more than $150 million.
After hitting a high of $53.62 on June 9, Suncor stock has taken a bearish tangent. It is trading today at about forty dollars in Toronto.
Also a long-time shareholder of Canadian Natural Resources, the Caisse still held 2.6 million shares in this Calgary energy producer at the end of March. This stake was worth 200 million at the beginning of April.
Canadian Natural Resources stock hit a high of $88.18 on April 21. The stock has since retreated and is now worth $70.
The price of a barrel of oil is also down from its peak of US$130 observed in March. The value of a barrel of crude is currently hovering around US$90.
By completely liquidating its shares in Suncor and Canadian Natural Resources, the Caisse is complying with its promise made last September to divest itself of its investments in oil production companies before the end of 2022.
If the Caisse had started selling shares of oil companies before the impressive rise in energy prices since last fall and before publicly revealing its desire to jettison oil, the organization nevertheless took advantage of the appreciation stock market in recent months to sell the rest of its shares in Suncor and Canadian Natural Resources.
The price of a barrel of oil was less than US$20 two years ago, at the height of the pandemic, while Suncor’s stock fell to less than $15 on the Toronto Stock Exchange and the stock of Canadian Natural Resources fell at the same time to less than $10.