What happened to Canadian oil company dividends?
November 18, 2011
Since oil has rebounded from under $80 to near the $100 level (last 2 times oil breached that level: Feb 2011 & Oct 2008), the majority of Canadian producers haven't increased their dividends. The reason? Since the end of the 2010 fiscal year many no longer enjoy the tax free incentives that came with being a trust due to new government legislation doing away with the tax benefits (consequently many including Baytex, Vermilion, Provident, Penn West have since converted back into corporations). Although this may cause investors to lose interest it may not be bad for companies in the long run; More profit will be reinvested back into the company through expansionary efforts. Berkshire Hathaway, for example pays no dividend even though many of the companies it owns, do.
Other news: On October 27, 2011 Canada's third largest oil company Cenovus Energy reported on the third quarter. Overall production was steady however natural gas production was down by more than 10% qoq, a trend not disimilar from its peers in the industry. It also set a long term production target for natural gas at 400-500 mmcf/d which is only half the rate at which it produced gas when the company first split from Encana in 2009. The lower results have nothing to do with resource depletions; Cenovus has been diverting capital expenditure away from gas and into oil which isn't surprising given that oil prices have increased by more than 400% since 2001 while natural gas prices (incluenced by supply and demand particularly the center of US deliveries in Louisina/NYMEX) are near a 9 year low of under $4/m3. Natural gas was as high as $16 in 2008, $6 in 2009. Even the little amount that has been invested into natural gas assets ($22m in the 3q compared to over $220m for Christina Lake/Foster Creek) was done with a focus on oil ($200m increase in natural gas cash flow due to the $22m capex, was reinvested in oil assets). 36 mmcf/d of gas producing assets were sold off between 3q10 and 3q11.
43% of natural gas demand comes from industry where it ranks second only to electricity. Gas isn't used only for heating, the butane and ethane in it is also used as a feedstock for fertilizer. More on natural gas at http://www.naturalgas.org/overview/uses_industry.asp
Other news: On October 27, 2011 Canada's third largest oil company Cenovus Energy reported on the third quarter. Overall production was steady however natural gas production was down by more than 10% qoq, a trend not disimilar from its peers in the industry. It also set a long term production target for natural gas at 400-500 mmcf/d which is only half the rate at which it produced gas when the company first split from Encana in 2009. The lower results have nothing to do with resource depletions; Cenovus has been diverting capital expenditure away from gas and into oil which isn't surprising given that oil prices have increased by more than 400% since 2001 while natural gas prices (incluenced by supply and demand particularly the center of US deliveries in Louisina/NYMEX) are near a 9 year low of under $4/m3. Natural gas was as high as $16 in 2008, $6 in 2009. Even the little amount that has been invested into natural gas assets ($22m in the 3q compared to over $220m for Christina Lake/Foster Creek) was done with a focus on oil ($200m increase in natural gas cash flow due to the $22m capex, was reinvested in oil assets). 36 mmcf/d of gas producing assets were sold off between 3q10 and 3q11.
43% of natural gas demand comes from industry where it ranks second only to electricity. Gas isn't used only for heating, the butane and ethane in it is also used as a feedstock for fertilizer. More on natural gas at http://www.naturalgas.org/overview/uses_industry.asp
Posted by Seraphim Blentzas. Posted In : Natural Gas
