CALGARY — Shares in Calgary-based Vermilion Energy Inc. and Surge Energy Inc. plunged on Wednesday after they announced the suspension of their dividend programs in response to persistently low oil prices.
Vermilion shares on the Toronto Stock Exchange fell 19.1 per cent to $4.82 at midday trading while Surge tumbled 9.8 per cent to 23 cents per share.
Both announced they will stop making shareholder payouts after previously reducing them.
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The two oil and gas companies said they were acting to protect their balance sheets as oil prices remain under pressure due to worldwide demand destruction caused by measures to fight the COVID-19 pandemic, as well as lingering effects of a market share battle between Russia and Saudi Arabia.
The decisions come despite an agreement struck last weekend by OPEC and other producers to cut output by about 9.7 million barrels per day starting in May — an amount analysts say is not sufficient to account for lower demand.
Analyst Michael Dunn of Stifel FirstEnergy said Vermilion’s move, while not entirely surprising, would likely disappoint investors who have been attracted by its record of reliable dividend payments.
Vermilion said that since the beginning of March its annualized cash outlays for capital spending and dividends have now been reduced by about $520 million.
Vermilion, which has Canadian and international oil and gas production, says it has also identified approximately $30 million of additional opportunities to reduce cash spending.
Surge, meanwhile, says it is withdrawing its 2020 guidance for nearly $100 million in capital spending this year after spending about $34 million in the first quarter.
It added it will temporarily curtail up to 4,400 barrels of oil equivalent per day of lower profitability production to maximize corporate cash flows.
It reported production of about 21,000 boe/d in March, prior to implementing the volume cuts, and said it will be able to ramp up output quickly when market conditions change.
National Bank analyst Dan Payne applauded Surge’s initiative as “extremely prudent” and needed to support its asset value and liquidity in a challenging environment.
Other energy companies that have recently reduced dividends include Cenovus Energy Inc., TORC Oil & Gas Ltd., PrairieSky Royalty Ltd., Whitecap Resources Inc. and ARC Resources Ltd.
The S&P/TSX Capped Energy Index, which tracks market performance of Canada’s top energy companies, was down by as much as eight per cent on Wednesday as U.S. benchmark West Texas Intermediate crude dropped below US$20 per barrel.
This report by The Canadian Press was first published April 15, 2020.
Companies in this story: (TSX:VET, TSX:SGY, TSX:WCP, TSX:CVE, TSX:ARX, TSX:TOG)
Dan Healing, The Canadian Press