The oilpatch is bracing for more layoffs, dividend reductions and capex cuts as companies reveal the full impact of the 14-month decline in oil prices on their fourth quarter earnings.
Cenovus Energy Inc. said Thursday the “hurricane force” impacting the has compelled the oilsands producer to cut its dividend and plan more layoffs this year, while oil services provider Precision Drilling Corp. said it’s suspending its dividend as the company suffered a $271 million net reduction in your fourth quarter.
Cenovus CEO Brian Ferguson said 2015 was a watershed year for the company but for the industry.
“We had a stiff headwind in 2015, which in 2016 went to hurricane force. We are ready to resist it,” Ferguson told investors in a conference call.
Cenovus battened on the hatches, cutting its quarterly dividend by 69 percent, after announcing an internet lack of $641 million in the fourth quarter. Full-year profit declined to $618 million, a 17 per cent drop over 2014. The company has scaled back capital spending for 2016 to $1.25 billion, when compared with $1.5 billion previously.
ARC Resources Ltd., a Calgary-based conventional producer, also cut its dividend, by Half, and reduced capital expenditure by 29 percent to $390 million late Wednesday evening.
Precision Drilling CEO Kevin Neveu offered a dour outlook for the sector.
“There is restricted visibility with few positive market signals,” he explained. “In this protracted challenging environment, financial stability is key for both survival and sustaining competitive advantage.”
Related
- Cenovus Energy Inc slashes dividend, cuts spending and jobs as loss deepens a lot more than expected
-
-
-
Cenovus’s staff retrenchment and capital and operating costs cuts would make sure the company remains stable even if prices stay at their current level of under US$30 per barrel till the end of 2018, Ferguson said.
After cutting 15 per cent, or 1,500 of staff, this past year, the organization said it was planning further layoffs. The company is also cutting cash compensation for Ferguson and 4 other top executives, as part of a bigger drive to find $200 million on price savings.
“My key message today is that we will not sacrifice our financial resilience. This is not a time for half-measures,” said Ferguson.
Cenovus’ conventional oil production declined by 12 percent during the year, primarily because it cut capital spending, but additionally due to the sale of non-core assets and divestiture of its royalty and fee land business in 2015.
The clients are looking to place some conventional assets but core assets for example its refinery business are “not on the market,” Ferguson said.
With $4 billion in cash, Ferguson said in an interview it’s looking at “opportunities” in its core areas, but declined to provide details.
RBC Capital Markets said it was maintaining its outperform rating on Cenovus with a price target of $22 per share, compared to its current cost of about $14.
Precision Drilling, which endured a $363 million loss for the year, said its drilling activity in its key markets of Canada and the United States declined 51 percent and 55 per cent, respectively. However, the price discipline of last year has allowed the company to boost its capital expenditures this season to $202 million, compared to its previous guidance of $180 million.
“We believe the need for a dividend cut in 1H16 had been well understood by institutional investors, given thorough disclosure at 3Q15,” Dan MacDonald, analyst at RBC Capital Markets, said in a note to clients. “PD remains one of our favourite methods to position for a recovery.”
The analyst includes a price target of $7.50 for Precision Drilling, about double its current price.
Investors also appeared to laud ARC Resources proceed to cut its dividend, using its stock rising six percent on the day.
Michael Harvey of RBC Capital Market said ARC’s quarterly results were solid “and the dividend/capex cuts seem sensible in our minds, removing a significant market overhang.”
Financial Post
yhussain@nationalpost.com
Twitter.com/YAD_FPEnergy
