Job losses, dividend cuts and red ink as Alberta’s oilpatch staggers under full fury of low prices

The oilpatch is bracing for additional layoffs, dividend reductions and capex cuts as companies reveal the entire impact of a 14-month decline in oil prices on their own 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 a break down $271 million net reduction in your fourth quarter.

Cenovus CEO Brian Ferguson said 2015 would be a watershed year for the company but for the industry.

“We were built with a stiff headwind in 2015, which in 2016 went to hurricane force. We are well prepared to resist it,” Ferguson told investors inside a business call.

Cenovus battened on the hatches, cutting its quarterly dividend by 69 percent, after announcing a net loss of $641 million within the fourth quarter. Full-year profit declined to $618 million, a 17 percent drop over 2014. The organization has scaled back capital spending for 2016 to $1.25 billion, compared to $1.5 billion previously.

ARC Resources Ltd., a Calgary-based conventional producer, also cut its dividend, by 50 per cent, and reduced capital expenditure by 29 percent to $390 million late Wednesday evening.

Precision Drilling CEO Kevin Neveu offered a dour outlook for that sector.

“There is limited visibility with few positive market signals,” he said. “In this protracted challenging environment, financial stability is key for survival and sustaining competitive advantage.”

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Cenovus Energy Inc slashes dividend, cuts spending and jobs as loss deepens more than expected

Cenovus’s staff retrenchment and capital and operating costs cuts would make sure the company remains stable even when prices stay at their current level of under US$30 per barrel up until the end of 2018, Ferguson said.

After cutting 15 per cent, or 1,500 of staff, this past year, the company said hello was planning further layoffs. The company is also cutting cash compensation for Ferguson and four some of the best executives, as part of a larger drive to locate $200 million on price savings.

“My key message today is the fact that we will not sacrifice our financial resilience. This isn’t a time for half-measures,” said Ferguson.

Cenovus’ conventional oil production declined by 12 per cent in the past year, primarily as it cut capital spending, but also because of the sale of non-core assets and divestiture of its royalty and fee land business in 2015.

The company is looking to place some conventional assets but core assets such as its refinery business are “not on the market,” Ferguson said.

With $4 billion in cash, Ferguson said within an interview it is taking a look at “opportunities” in the core areas, but declined to give details.

RBC Capital Markets said hello 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 that year, said its drilling activity in its key markets of Canada and also the Usa declined 51 per cent and 55 per cent, respectively. However, the cost discipline of last year means the company to boost its capital expenditures this year to $202 million, compared to its previous guidance of $180 million.

“We believe the requirement for a dividend cut in 1H16 have 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 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 move to cut its dividend, using its stock rising six per cent at the time.

Michael Harvey of RBC Capital Market said ARC’s quarterly outcome was solid “and the dividend/capex cuts seem sensible within our minds, removing a substantial market overhang.”

Financial Post

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