Dividend Cut: Pengrowth Energy Corp. (PGF)
On January 20th, Pengrowth Energy Corp. (TSE: PGF) announced it would suspend it’s dividend for the first quarter of 2016, and the Board will review the dividend on a per-quarter basis going forward. I’m not surprised at all, PGF has been hit extremely hard and even just got fined $250K over an Alberta oil pipeline breach. That cash would go a long way in paying off their debts considering the company appears to be under extreme stress.
My 12-month forward dividend income generated from PGF has been reduced by $7.80 if they do not pay a dividend for the next three quarters (I don’t expect them to, and would rather they focus on paying down debt with the dividend cash), this averages out to a monthly loss of $0.65.
Oil companies are having a lot of trouble in this environment, and I expect quite a few more to cut their dividends, as such I do not plan on investing in oil for the foreseeable future until prices resume an upward trend, and even then, I would like to have a very mitigated allocation to resource stocks. Among Pengrowth Energy Corp, Whitecap Resources (another one of my holdings) cut their dividend by 40%, and Husky energy suspended their dividend. Luckily, Pengrowth has significant hedges in place for 2016, with 74 percent of 2016 estimated oil production hedged at Cdn $88.57/bbl.
I will not be selling my shares in PGF, but only due to the fact that I am down 80% on my small investment of less than $800.00. Even the transaction cost to sell my shares at this point would make little sense, and I would not be able to properly reallocate such a small amount of money. Pengrowth accounts for less than 1% of my portfolio, so I will leave the shares in my brokerage account and see what happens. I purchased these shares a very long time ago, when I just began my investment journey and did not do my due dilligence. It is hard to admit, but this is exactly what happens when you neglect to do so.
*I personally would not invest in PGF today.
Pengrowth’s 2016 Revised Capital Budget
Following are the most important (to me, in my view) points I took from Pengrowth’s 2016 revised capital budget and operational update:
- Pengrowth is focused on preserving its financial health in this low commodity price environment and, while the Company recognizes the importance of its dividend to shareholders, maintaining its balance sheet in this environment takes precedence. As a result of the continued weakness in oil and gas prices, coupled with the near term outlook for prices, the Board of Directors has suspended the quarterly dividend. No cash dividend will be paid for the first quarter of 2016. The Board will continue to review the dividend on a quarterly basis. Pengrowth is taking this necessary step during this period of low prices to emerge with a better financial position when prices recover.2015 Operational Performance
- Pengrowth reduced its head office staff by approximately 25 percent in September of 2015, this will save the Company approximately $25 million in 2016
- Pengrowth announced its intent to sell $600 million of non-core assets and direct the proceeds from the sales towards reducing its outstanding debt
- the Company achieved $263 million of asset proceeds in 2015 and has additional pending asset sales which are expected to close during the first quarter of 2016 (upon closing, total asset disposition proceeds would be in excess of $300 million)
- Pengrowth still plans to continue with its non-core asset sales process throughout 2016 to achieve its $600 million goal2016 Lindbergh Capital
- Lindbergh remains economically robust with a current cash flow break-even price of US $17.00/bbl,
- Pengrowth will slow the pace of development in 2016 until a more supportive commodity price environment persistsOperating Expenses
- Gross operating expenses in 2016 are expected to decline by six percent from 2015 primarily due to the Company’s cost containment efforts in 2015Cash General & Administrative Expenses
- Cash general and administrative (G&A) expenses are expected to decline by approximately $25 million (28 percent) on a gross dollar basis from 2015 levels
- Cost management efforts in 2015 are the drivers behind the decline in expensesFinancial Flexibility and Liquidity
- Approximately 87 percent of Pengrowth’s long-term debt is comprised of senior unsecured term debt with fixed interest rates and maturity dates
- This set of laddered maturity dates ensures that the Company has the ability to manage its debt position without having a significant maturity burden in any given year.
- As at December 31, 2015 Pengrowth’s total debt was approximately Cdn $1.85 billion, a reduction of approximately 10 percent from September 30, 2015.Commodity Risk management
- Currently, the Company has approximately 22,239 bbl/d of 2016 crude oil production (74 percent of 2016 estimated oil production) hedged at Cdn $88.57/bbl and approximately 127 million cubic feet per day (MMcf/d) of 2016 natural gas production (93 percent of 2016 estimated gas production) hedged at Cdn $3.28/Mcf. The Company also has significant natural gas hedges in place for 2017 and 2018 and continues to target opportunities to add additional crude oil hedges for 2017 and 2018 should the commodity price opportunity present itself.