GREY:WFREF - Post by User
Post by
JohnJBondon Nov 27, 2014 1:04pm
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Post# 23170425
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.LRE is not presently trading on fundamentals.
Today's action - price drop from already sub fundamental value, on strong volume...........probably more to do with margin directed selling from idiots stupid enough to buy on margin via banks that margin down to $2. The sooner those retards are eliminated from the market, the better for the rest of us.
The oil supply/demand figures are very close, and not far out of balance as of this date. It will not take much strategic hording by China, and/or increased consumption by the rest of the world, to remove the small amount of extra supply.
Yes there is a risk the dividend will be reduced or elimated down the road. If they cut the dividend, it would be like a sudden increase of $84 million in annual cash flow, which should be enough to keep this company financially solvent thought a lengthy low price decline (in a worst case senario).
The existance of the dividend is like carrying a cash flow safety reserve.
The dividend has caused the company to spend and grow at a much lower rate than it would be doing if it didn't have a dividend. If that were not the case, this company would be looking at cutting back cap ex, and the resultant decrease in production as a result of reduced cash flow.
Decreased production causes lenders to reduce their lending limites, which forces companies to slow further, and in many cases, sell assets to pay down debt - all of which is very bad for the share price.
Some analysts are focusing on various company's dividend security. I prefer to focus on the prospect of non-dividend paying companies having to cut back on cap ex spending, and resultant production becaues they no longer have the cash flow needed to obtain increases in the borrowing limits, which they need to continue to grow production.
At current prices, I do not believe a dividend cut would have anything more than a knee jerk negative price effect. Once that knee jerk reaction has passed, I suspect it would be favoralbe to the share price.
FYI, it will be the lenders who decide if the dividend has to be cut or reduced. If lenders threaten to tighen their lending based on reduced cash flow, then the dividend will be reduced or eliminated.
Horizontal fracking produces wells with rapid early production declines. If these drillers reduce drilling rates, their cummulative production declines very quickly. It won't take much to be the brakes on US shale production growth.