Gibson Energy faces shareholder demands to sell assets

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Gibson Energy Inc.'s largest shareholder says it's frustrated with the slow pace of the company's restructuring and is demanding a new round of asset sales to set the remaining oil-storage business up to be an attractive acquisition target.

M&G Investment Management Ltd., which owns 19.4 per cent of Calgary-based Gibson, said that the company remains unfocused despite some recent divestitures, leaving investors confused over the long-term strategy. This has hurt the share price and as a result, it should launch a strategic review and consider a sale, U.K.-based M&G said in a letter to Gibson chairman James Estey.

"Despite trying to apply significant pressure behind the scenes for over two years to try and effect change, we have been disappointed with the pace of progress. During the course of 2016, we communicated to you our dissatisfaction with the existing management team and its strategy," M&G fund manager Stuart Rhodes wrote.

Gibson is best known for its oil storage, pipeline and trucking businesses, which include terminals in Edmonton and Hardisty, Alta. It also operates oil and gas processing plants, sells drilling fluids and provides water treatment services.

Shares in the company peaked at more than $37 in 2014, before global oil prices collapsed, and are now worth less than half that, making it among the worst market performers in its segment. Following the release of the letter on Monday, the stock was up more than 2 per cent at $16.57 on the Toronto Stock Exchange.

M&G's decision to go public with its complaints highlights growing dissatisfaction among investors and private-equity players following nearly three years of poor performance in the industry amid the downturn.

Mr. Rhodes said he was pleased with the recent appointment of Steve Spaulding to chief executive officer, replacing the retired Stew Hanlon. He is also heartened by Gibson's intention to sell its U.S. environmental services division by the end of this year while maintaining the dividend. But it wants the company to unload more assets, including its asphalt refinery in Moose Jaw, Sask., and any trucking operations not associated with its main energy infrastructure businesses.

Once Gibson finishes the laundry list of sales M&G outlines, and launches a renewed cost-cutting drive, it should hire investment bankers to find ways to boost the share value, including exploring a sale, Mr. Rhodes said.

"We believe that a streamlined and focused company based around core strategic assets would be an attractive asset to a wide variety of potential suitors," he said. "If the market is not going to give the company the appropriate valuation we think it deserves, then we are confident the value can be realized by a sale process."

For its part, Gibson said it has had constructive dialogue with M&G, and that the two sides are aligned on concentrating on oil storage and maintaining the dividend policy. It did not comment on why it believes M&G decided to go public, and an M&G spokesman was not available for comment.

"Gibsons has been actively divesting non-core assets and optimizing its capital structure. In the first quarter of 2017, Gibsons divested its Industrial Propane business for $435-million, helping to reduce long-term debt by 25 per cent," Gibson said in a statement. "In 2018, Gibsons expects infrastructure will account for fully 75 per cent of its segment profit, the majority of which will come from secure, long-term, fixed-fee contracts that are not volume-dependent."

Should Gibson put up a For Sale sign, the oil storage business would pique the interest of most of the large energy-infrastructure players, including such companies as Pembina Pipeline Corp., Keyera Corp. and Inter Pipeline Ltd., said Dirk Lever, analyst at AltaCorp Capital Inc.

"I have seen the assets at Hardisty. They are crown-jewel assets. Who would want them? Who wouldn't, is my response," Mr. Lever said.