Pengrowth Energy Corp. (TSX:PGF)(NYSE:PGH) is fighting hard to survive the worst oil-market downturn in decades. It has made a number of tough choices, including eliminating its dividend and cutting investments back to the point where it can no longer stay ahead of the decline rate from legacy wells. These efforts, however, haven’t gone unnoticed. The company recently drew the support of Canadian billionaire investor Seymour Schulich, who just bought a big stake in the company.
Who is Seymour Schulich?
Born in 1940 in Montreal, Schulich’s first job was working for the Shell Oil Company before spending the bulk of his early career working for a pension management company. His claim to fame, however, came when he and a partner pioneered the concept of royalty payments in the mining industry, founding the Franco-Nevada and Euro-Nevada companies, which allowed those companies to gain access to some of the world’s most profitable mines through royalty deals.
Schulich and his investors made a mint in mining with a $1,000 investment in Franco-Nevada’s stock in 1983, which turned into a $1.2 million windfall two decades later when it and two other companies merged to create Newmont Mining.
He continues to invest primarily in the mining and energy sector, which have made him a billionaire over the years through very concentrated investments in just a select few companies that he feels have the best chance to make a lot of money.
Why is he drawn to Pengrowth Energy?
In an interview last year, Schulich said that he only owned five investments at the time, including a 26% stake in Birchcliff Energy Ltd., which makes his recent purchase of a 14.7% stake in Pengrowth worth noting. While he only paid about $80 million for the stake, a small pittance for a billionaire, the fact that he has invested anything in the company suggests he sees a potentially outsized payout in the years ahead.
So far, Pengrowth has been a bust for investors, losing 95% of its value since 2007. Its heavy debt load in recent years has forced the company to take drastic action to protect its balance sheet. Its most pressing concern is more than $500 million in debt maturing next year. The company intends to address that debt maturity with excess cash flow, which was made possible after it slashed spending and eliminated shareholder distributions. Its goal is to first survive the downturn, so it can thrive when conditions improve.
It’s that potential for better days ahead that’s drawn Schulich to Pengrowth. In particular, the company is sitting on over half a billion barrels of oil equivalent resource potential in the Lindbergh and Groundbrich areas that it hopes to develop in the future. The company sees the potential to invest over $11 billion in long-life, low-decline, low-cost assets over the long term, which could grow the current $2 billion company exponentially in the years ahead.
The Goundbrich area in particular fits within Schulich’s current focus on natural gas, because it’s right in the heart of the Montney shale gas play. It’s the same play that Birchcliff Energy is focused on, which is what drew him to that company in the first place.
Overall, he sees huge potential in gas because he’s a firm believer that many of the proposed LNG export plants in B.C. will eventually be built and will therefore need gas, resulting in windfall profits for Montney producers like Birchcliff and Pengrowth.
Schulich has long sought investments in the resource sector that offer a big opportunities for a future payoffs. He sees such an opportunity in Pengrowth because of its massive oil and gas reserves, which could create remarkable value for shareholders in the future. It’s a very long-term outlook given that it will be years before B.C. LNG export facilities need this gas (if at all).
That said, Pengrowth has the potential to fuel even more profits into Seymour Schulich’s pockets.