More dividends chopped as energy firms address oil prices below US$30 per barrel

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CALGARY — More energy industry dividends are being slashed as investors turn their backs on companies whose payouts are now unaffordable with oil prices plunging to less than US$30 per barrel.

Calgary-based TORC Oil & Gas Ltd. announced after markets closed Monday an 80 per cent cut in its monthly dividend to half a cent from 2.5 cents, a move it said would save about $53 million per year. 

On Tuesday, its shares bounced between 63 and 78 cents, trading at a fraction of their 52-week high of $5.47 set in April of last year.

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“The announcement follows the same theme that we have seen from a number of other upstream producers, reducing dividends in light of the current global commodity and economic weakness,” said AltaCorp Capital analyst Patrick O’Rourke in a report.

“Overall, we view the event as positive for the business, as the dividend cut brings 2020 capital flows back into balance in our modeling.”

He said TORC has been one of the weaker market performers as oil prices softened in recent weeks because its dividend was not sustainable.

The company said it has completed its first-quarter capital program and will use the spring slowdown period to review and likely reduce its capital budget for the second half of the year.

Oil prices were already falling because of fears the COVID-19 outbreak would slow global energy demand when a price war erupted between major producers Saudi Arabia and Russia after they failed to agree on an extension to their output cuts.

Calgary-based PrairieSky Royalty Ltd., which earns revenue from producers who drill on lands where it owns the mineral rights, announced it would cut its dividend by almost 70 per cent after markets closed Monday.

It’s shares fell by as much as 12.8 per cent to $6.98 on Tuesday before settling about five per cent lower at $7.55 at 1 p.m. EDT.

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“Given PrairieSky’s long duration, low decline cash flow stream, we believe this decision is prudent and provides PrairieSky with enhanced flexibility during a challenging macro backdrop,” said CEO Andrew Phillips in a statement.

The reduction was widely expected but some analysts were surprised by the size of the dividend cut to 24 cents per year from 78 cents.

“The current environment is no doubt a challenging one. The move by PrairieSky, which is debt-free and has no capital requirements, to moderate its dividend by 70 per cent is perhaps a demonstration that nothing is off the table at this juncture,” said CIBC analyst Jamie Kubik.

He added: “At at this stage, survivability and strategic positioning are critical.”

Other energy companies that have cut their dividends in recent days include Vermilion Energy Inc., Crescent Point Energy Corp. and ARC Resources Ltd.

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This report by The Canadian Press was first published March 17, 2020.

Companies in this story: (TSX:TOG, TSX:PSK, TSX:VET, TSX:CPG, TSX:ARX)

 

Dan Healing, The Canadian Press


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