Some answers for your questions:
1. Pengrowth hedged 23,000 bbl/d of conventional light oil. Not a single barrel of Lindbergh heavy oil has
2. Management won't reduce the dividend in 2015, but if low oil prices persist they won't have much choice in
3. Pengrowth has a severely reduce cash flow that won't cover current capex and the dividend. So buying
another firm is not in the cards.
4. Only a fire sale would attract a buyer of oil assets in this low crude oil environment. So selling assets is
not a serious option.
5. Pengrowth would be stupid to purchase more hedges at these ridiculous prices.
6. It would make more sense to curtail lower netback conventional oil production and continue with high
netback Lindbergh phase 2 and 3.
7. Management can think all it wants, but in the final analysis the price of oil and gas with always call the tune.
Yahoo shows DEO dividend as $4.32 but is that gross before the currency differential or is it net after conversion to US dollars? Anyone know the exact dividend in US dollars?
I'll give you a short answer to your question.
Lindbergh is a heavy oil project which requires a series or steam injection and a production wells. These wells are 330 feet apart and create one continuous steam chamber which causes the heavy oil to flow to the production wells where it is pumped to the surface and processed in the central processing unit.
The advantages of Lindbergh are it's long life reserves, low cost of production, and high netbacks which are important in this low crude oil priced market.
Supply and demand is the cause of this crude oil price volatility. Too much supply and too little demand.
Even now there is a continuing build in crude oil inventories and the market won't correct that situation for another 12 to 18 months.
With the hedges in place and the additional production from Lindbergh coming on line to offset losses on un-hedged production, Pengrowth will be in a financial position to sustain the dividend through 2015. By that time reduced oil company capex and drilling will cause oil inventories will begin to decline and prices to begin to rise. The over supply of crude oil will be over and Pengrowth will have lived to fight another day.
At some point almost every stock becomes a buy based on valuation. That along with the fact that Lindbergh first steam will begin in a couple of days is the reason Pengrowth stock has risen from $2.41 to $2.71 recently. The real question is whether on not that price appreciation will continue.
Why the bump you ask.
MY hypothesis concerning the recent limited stock price appreciation goes like this - first steam at Lindbergh will begin in a couple of days and anticipation of that event is giving the stock a temporary boost.
Question: Can Pengrowth survive in a sustained sixty dollar crude oil world?
Answer: Yes, we survived when oil was ten dollars a barrel and we could do it again provided oil prices don’t stay that low for a prolonged period of time.
Question: Where will your cash flows come from to pay the dividend and fund capex?
Answer: With $60.00 WTI, Cardium conventional light oil wells will give us a 15% return, and Lindbergh heavy oil will give us a 20% return even without the benefit of the extensive hedges which we currently have in place. In 2014 natural gas represented 44% of our production and 20% of our cash flows. As oil prices have declined natural gas’ percentage of cash flows has increased.
Question: Does the company have any loan covenants or restrictions that would prevent it from paying the dividend?
Answer: Yes, but we are currently in compliance with all loan covenants and plan to continue the dividend as long as our cash flows allow us to do so.
Question: Does the company have any debts maturing in 2015 or 2016?
Answer: Yes, about 117 million which will not be a rollover problem.
Question: When will first steam at Lindbergh occur?
Answer: In a couple of days.
Pengrowth does not have a "guaranteed" high revenue stream for the next year because 33% of it's oil production will be selling at the current low WTI crude oil price of $59.86 per barrel. That price doesn't cover the cost of of conventional exploration and production. The company will probably earn enough to pay the dividend and fund capex at Lindbergh where netbacks are higher, but conventional capex will be suspended until further notice.
Absolutely, this company has a ton of debt. When debt is 400% of equity it means that for every dollar invested four dollars are borrowed and that's off the charts. Fortunately, the current cash flow is enough to cover the interest expense and the dividend. However, that's always subject to change.
I'll play devils advocate for a moment by saying that Pengrowth won't be so solid if today's JP Morgan's prediction of $48.00 WTI turns out to be accurate. If that happens and is sustained for any length of time Pengrowth wil be severely tested along with all the other small E&P companies.
Somewhere on Williams' website, I read that the company explores for oil and gas, and yet I can't find any specific information about Williams Company being in the exploration business or having exposure to lower oil prices. Anyone knowledgeable on this subject?
I am still here reading more than writing.
I grew tied of the p___ing contest with two black cats and stopped posting to avoid it. I am spending my time these days licking my Pengrowth financial wounds and hoping that even this crude oil pricing debacle will pass in due time.
Management made all the right moves over the last couple of years and just when first production at Lindbergh was about to begin the fall in crude oil pricing spoiled everything. The good news is that management put significant hedges in place for this year and next - and by reducing the dividend and conventional capex the company will survive as a niche heavy oil producer and live to fight another day.
I intend to still be here when that day comes.
As a stockholder I can empathize with your pain.
However, you can't blame management for the collapsing price of crude oil or the fact that they made the decision to transform the company to a heavy oil producer rather than drill, drill, drill for costly oil on a constant basis. You must be aware that Pengrowth management was wise enough to hedge a significant amount of their production at ninety dollar plus in 2014, 2015 and 2016.
We both know, or should know, that the company is being hurt by factors beyond managements control and all they can do is reduce drilling expenses for high cost conventional oil, and concentrate on the production of low cost heavy oil at Lindbergh.
Lindbergh will be the salvation of this company. Over time the whole company will be transformed into a low cost, high netback, niche heavy oil producer. Unfortunately, if crude oil prices remain this low for a long time the dividend will be reduced or eliminated.
Even though the best is yet to come the situation will probably get worst before it gets better and the stock price will probably reflect that fact.
With WTI at current levels management needs to hold on to every dollar it can get its hands on just to pay it's debts. There are no funds available for stock repurchases and the dividend will soon be a thing of the past.
I like your optimism and it looks like you've done some homework, but the bottom line is that there's much more oil production in the world than demand and the producers are fighting over market share. OPEC probably won't be cutting their production and oil prices are probably going lower.
In a worst case scenario lower crude oil pricing could easily wipe out all cash flow from Pengrowths' 71,000 barrel per day conventional production which breaks even at $71.00 per barrel. Netbacks from Lindbergh heavy oil production will offset some of that cash flow loss from conventional oil but not enough to fund the dividend and capex.
CVI does not own CVRR. CVI is the general partner of CVRR and is also the general partner of CVR partners Limited. One LP runs two refineries and the other runs a fertilizer business. CVI owns the majority of the units in both limited partnerships which entitles it to most of the distributions from those entities.
So you can't compare apples and oranges and you really need to understand the general partner agreements before you can value any of these three companies.