Friday, March 18, 2016

Oil investers see $7.4 billion vanish as dividends are targeted

NEW YORK (Bloomberg) -- The check is not in the mail.

Bludgeoned by falling energy prices, at least a dozen oil and natural gas companies have opted to cut dividends this year to preserve cash, cannibalizing payouts considered sacrosanct by many investors.

The cost to shareholders: more than $7.4 billion in lost income, compared to what they would have received this year if the payouts remained the same.

It’s another painful measure--along with tens of thousands of layoffs and more than $100 billion in canceled investments--of the toll taken on the industry by the worst oil and gas price slump in decades. The quarterly payments, prized by conservative shareholders as a source of steady income, are unlikely to be restored any time soon.

“It really reinforces the necessity of having a margin of safety if you are buying a stock primarily for its dividend," said Josh Peters, editor of Morningstar Inc.’s DividendInvestor newsletter. “What we have found for some of the energy companies is that the margin of safety was either slim or nonexistent."

Kinder Morgan Inc.’s 75% dividend cut was the biggest, amounting to a $3.44 billion loss for shareholders over the course of 2016. The announcement from North America’s largest pipeline operator “came as a shock to some people and obviously was deplored by some people," founder and Executive Chairman Richard Kinder told analysts at a Jan. 27 meeting.

The move was necessary to help the Houston-based company keep its investment-grade credit rating while ensuring it has enough money to pay debts and grow, Kinder said. Since the Dec. 8 announcement, shares have risen about 20%, compared with a 3% gain for the Alerian MLP stock index, which tracks energy infrastructure companies.

“This is a direct result of investors’ appreciation of the significant efforts we’ve made to live within cash flow and strengthen our balance sheet," spokesman Dave Conover said in an email.

Dividend-slashers including ConocoPhillips ($2.42 billion in annualized cuts) and Anadarko Petroleum Corp. ($447 million) made similar arguments. They followed the lead of Marathon Oil Corp., Eni SpA, Chesapeake Energy Corp. and Transocean Ltd., who cut payouts in 2015 as the industry girded for what’s expected to be a multiyear slump.

Along with a dividend cut, ConocoPhillips also canceled plans to boost production and said it expects to write down the value of some fields by $800 million. “We believe it’s prudent to plan for lower prices for a longer period," CEO Ryan Lance said in a Feb. 4 statement.

European Payouts

In Europe, the downturn forced Repsol SA, Spain’s biggest oil company, to reduce payouts for the first time in seven years after reporting a net loss in the fourth quarter. Norway’s Statoil ASA kept its payout but proposed a scrip dividend last month, allowing shareholders to take their payment in shares instead of cash.

In Canada, Husky Energy Inc., Crescent Point Energy Corp. and Cenovus Energy Inc. also cut dividends. Husky switched from cash to a stock payment last year before completely eliminating the benefit for 2016.

“The Board will continue to review the dividend on a quarterly basis with the objective of restoring a sustainable dividend,” Kim Guttormson, a spokeswoman for Husky, said in an email.

Also paring dividends this year: U.S. drillers Cimarex Energy Co., Devon Energy Corp., Noble Energy Inc. and Range Resources Corp. and UK oil-services provider Amec Foster Wheeler Plc.

Bloomberg News calculated the cost to shareholders based on the number of periods companies will pay at the lower dividend rate in 2016, assuming no further changes. Repsol has only declared one payment so far this year.

Tough Decision

For smaller or newer drillers like a Cimarex or Range Resources, which each halved their dividend, the decision was probably easier, said Brian Youngberg, an Edward Jones & Co. analyst in St. Louis. With better growth pro


Post a Comment

Tu comentario será moderado la primera vez que lo hagas al igual que si incluyes enlaces. A partir de ahi no ser necesario si usas los mismos datos y mantienes la cordura. No se publicarán insultos, difamaciones o faltas de respeto hacia los lectores y comentaristas de este blog.