Low Oil Prices Erase $7.4+ Billion in Dividends During 2016

03/17/2016 9:15 am EST

Focus: ENERGY

Michael Berger

President & Founder, Technical420.com

The weak oil price environment has caused thousands of layoffs and it has forced at least a dozen oil and natural gas companies to slash or suspend dividend payouts says, Michael Berger, of Technical420.com, who discusses the state of MLP industry.

Since the beginning of the year, weak oil prices have erased more than $7.4 billion in income through lower or suspended dividend payments.

Even though the low oil price environment has benefited many consumers at the gas station, it has led to tens of thousands of layoffs and more than $100 billion in cancelled investments.

Long Road to Recovery

Low oil prices have forced at least a dozen oil and natural gas companies to cut dividends this year to preserve cash and improve balance sheets. This has decreased or halted payouts from energy companies that many investors relied upon for income.

These quarterly payments, prized by conservative shareholders as a source of steady income, are unlikely to be restored any time soon.

Several Paths to Choose From

We see very different paths for partnerships during this down cycle. While diminished growth in the sector has impacted all partnerships, many MLPs do not have any funding concerns and are not threatened in structure or growth.

Other MLPs will have to take steps such as temporarily suspending or cutting their distribution in order to re-build a financial cushion.

Largest Dividend Cutters of 2016

Earlier this year, Kinder Morgan Inc. (KMI) shocked the energy world when it slashed its dividend by 75%. This accounted for a $3.44 billion loss for shareholders, the largest cut this year. Some of the other large dividend slashers include:

  • ConocoPhillips (COP) with $2.42 billion in annualized cuts
  • Anadarko Petroleum Corp. (APC) with $447 million in annualized cuts
  • Crescent Point Energy Corp (CPG) with $318 million in annualized cuts
  • Devon Energy (DVN) with $276 million in annualized cuts

These cuts followed the lead of Marathon Oil Corp. (MRO), Eni SpA (E), Chesapeake Energy Corp. (CHK) and Transocean Ltd. (RIG), who cut payouts in 2015.

Tougher Decision for Larger Companies

For smaller or newer drillers, the decision to cut a dividend is much easier because these stocks are in their growth phase and are not income investments. It is a much tougher decision for companies like Exxon Mobil Corp. (XOM) or Chevron Corp. (CVX) who are known as income stocks.

We believe that a temporary distribution cut would be beneficial for most energy companies in the long-term. Once the capital and commodity price environments improve, companies will be financially flexible and able to consistently increase the size of their respective distributions.

By Michael Berger, President and Founder, Technical420.com

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