Oil Price Threatens Canadian Producer Dividends

The ability of Canadian oil producers to lure investors with generous dividends is being tested as cash flow is squeezed by crude trading near five-year lows.

Canadian Oil Sands Ltd. (COS) will cut its quarterly dividend 42 percent to 20 cents a share in late January, the Calgary-based company said in a 2015 budget forecast statement today after the close of North American markets. Companies will have to choose between reducing spending or payments to shareholders, said Sprott Asset Management LP’s Eric Nuttall.

“The true sustainability of the dividend model at current oil prices in Canada is highly challenged,” said Nuttall, who oversees C$120 million ($106 million) at Sprott in Toronto. He predicted capital spending will fall 15 percent next year and dividend reductions may follow if prices stay low. “The current oil price does not work for the industry.”

Canadian energy companies, such as Baytex Energy Corp. (BTE) with average dividend levels higher than their U.S. peers, are grappling with tough choices after oil fell as much as 40 percent from its high in June. The plunge accelerated last week after OPEC committed to maintaining its current output target amid a supply glut and a global battle for market share.

via Bloomberg

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza