Amid the doom and gloom surrounding falling oil prices and the expectations of companies scaling back spending in 2015, the buck seemingly stops at dividend payments.
Times are getting tougher in the oilpatch, but not so bad that companies are moving to reduce the monthly or quarterly payments to shareholders that increasingly appear to be one of the few stable aspects of an industry beset by commodity-price declines and stock-market sell-offs. In some cases, dividends are a growth story.
"I consider it a commitment to our shareholders. It's a commitment we want to be able to grow and increase over time," Cenovus Energy chief executive Brian Ferguson said Thursday after the company was among the first in the sector to report its third-quarter operating and financial results. "We will do nothing to jeopardize our dividend."
Cenovus will pay a quarterly dividend of 26.62 cents per share in December and deliver more than $800 million in payments to owners of its stock in 2014 while Husky Energy confirmed its dividend would remain at 30 cents to bring the total payout to shareholders to more than $1.1 billion this year.
Husky has had a five-fold increase in its dividend over the last decade.
Oilfield services company Mullen Group released what it termed disappointing quarterly results Thursday.
CEO Murray Mullen lamented, "these are uncertain times for Canada's energy sector" in a news release, but he made no mention of any change to the 10-cent monthly dividend that will deliver $110 million to shareholders this year.
Oil and gas producers in Canada have averaged more than $66 billion in capital expenditures in the last three years, but with benchmark oil prices declining more than 20 per cent since the peak in June, industry analysts have forecast spending could decline as much as 10 per cent in 2015.
West Texas Intermediate crude continued on its roller-coaster ride gaining $1.46 to $81.97 US Thursday, but is well below the $105 US it surpassed in June.
The oilpatch's long-standing business model of perpetual production growth through the drill bit or acquisitions has largely given way to a focus on earnings and sustainable dividends in recent years.
The sector expects to bring in less cash to fund drilling in 2015, but shareholders will largely be spared the pain.
"With the reductions in oil prices we're not expecting to see any reductions to dividends," said Katrina Karkkainen, an industry analyst with FirstEnergy Capital. "All the companies we've talked to have said that the first lever they pull is always the capital programs. I would expect to see those come in lower and as a result growth targets will be pressured, but I don't see the dividend payments getting hit at this point."
After the challenge companies have had attracting qualified workers in the last decade, it's surprising Karkkainen added that "we haven't heard anything at all about job cuts."
The sector has seen some downsizing. Talisman Energy and Encana reduced staffas they refocused operations in the last two years while Statoil and Total laid offpeople after mothballing oilsands projects this year. Regardless, Alberta and Saskatchewan still have the lowest unemployment rates in Canada and the oilpatch has seen the biggest pay hikes in Canada.
The most recent noteworthy reduction to a dividend came last November when new Encana CEO Doug Suttles cut the 21 cent quarterly payment to seven cents as the company focused on divesting gas assets and acquiring oil properties in the past year.
Despite the slide in oil prices - and years of barely economic natural gas prices - rising costs are still a primary focus across the sector.
The outlook for 2015 is decidedly cautious. "In such a volatile environment we are focusing on what we can control, which is operational performance," Husky CEO Asim Ghosh told analysts.
Cenovus has raised its dividend by 10 per cent in each of the last three years and its board of directors will assess another hike in January. Ferguson said the oilsands producer has about $2 billion in committed capital expenditures and expects to generate close to $3.8 billion in cash flow this year to fund the dividend and growth projects.
He said Cenovus would be "prudent" with its spending going forward. However, with its commitment to "total shareholder return" and stock price at $27.97 Thursday - well below its 52-week high of $34.79 - the rising dividend is a strong selling point to investors. The overall yields for investors will certainly be challenged in this market, but even with so much pessimism the commitment by companies to maintain their dividends suggests the industry isn't in that much trouble.
By Stephen Ewart, Calgary Herald
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