DIVIDEND SLASHED
Calfrac cuts again
In another indication oil and gas prices will be “lower for longer,” Calgary- based Calfrac Well Services Ltd. has chopped its investor payouts to a level below its first dividends established 10 years ago.
The company on Thursday morning declared a quarterly dividend of 1.5625 cents per share, payable Oct. 15. It represents a 75 per cent cut from 6.25 cents per share set in June, which was a 50 per cent trim from the previous 12.5 cents.
On an annual basis, Calfrac is now paying investors 6.25 cents per year, down from 50 cents last year. Its first dividends in 2005 paid 10 cents per year.
“The lower payout regime represents lack of visibility that is available in the market today for the coming 2016- 2017 years,” wrote president and chief executive Fernando Aguilar in an email response to a Herald inquiry. “As our customers start preparing their capital budgets for 2016, we will be able to understand what their plans will be.”
He pointed out the number of active rigs drilling in North America is down about 50 per cent compared with the same time last year and international activity is off 25 to 30 per cent. The lower activity is expected to eventually reduce the supply of oil and will spur renewed activity, he said.
Calfrac, meanwhile, will continue discussions with suppliers to reduce costs while implementing initiatives to improve efficiency, Aguilar said.
The company also suspended its dividend reinvestment plan or DRIP, which allowed shareholders to buy new shares at 95 per cent of the five- day weighted average price. The investor participation rate was about 24 per cent.
“The reduction of payout, in our view, likely indicates Calfrac is positioning for 2016 to be a similar year to 2015, and potentially worse,” said analyst Scott Treadwell of TD Securities in a morning note.
“We believe visibility remains nearly non- existent beyond a few weeks for most OFS ( oilfield services) names, and would view the proactive dividend cut to be a prudent step, though some investors may view the cut negatively.”
Analyst Dana Benner of AltaCorp Capital calculated the cut would reduce the annual cost of the dividend to about $ 6 million from $ 24 million.
Calfrac shares closed down 20 cents or five per cent at $ 3.68. They’ve traded between $ 3 and $ 18.26 in the past 52 weeks.
In February, the company announced it would withdraw entirely from the South American country of Colombia, but it would invest in equipment to grow in Argentina.
In a September presentation on its website, it says it has parked 44 per cent of its fracturing horsepower in Canada and 50 per cent in the United States. It says its Canadian field workforce is about 38 per cent smaller than at the beginning of the year and its U. S. workforce is down about 50 per cent.
In January, Calgary- based rival Trican Well Service Ltd. suspended its annual 30- cent- per- share dividend. The company has since sold its Russian well- fracturing business to Rosneft Oil Co. for $ 182 million and expects to sell its Kazakhstan assets to the same buyer in the fourth quarter. It closed its operation in Australia and is exiting the Saudi Arabian market it entered last year.