Analyses from the latest production updateAfter reading the latest Production Update, I am not really worried about the dividend payout, yet... Look at this :-
Sensitivity of Payout Ratio to Production and Commodity Price - CALL this the POR.
| | 2012 Average WTI | |
| | $75.00 | | $88.00 | | $95.00 | |
| 2012 Average WI | 2,400 | 62 | % | 55 | % | 50 | % |
| Production (bopd) | 2,600 | 57 | % | 50 | % | 46 | % |
| 2,800 | 52 | % | 46 | % | 42 | % |
Sensitivity of Sustainability Ratio to Production and Commodity Price - CALL this the SUSRAT.
| | 2012 Average WTI | |
| | $75.00 | | $88.00 | | $95.00 | |
| 2012 Average WI | 2,400 | 102 | % | 90 | % | 83 | % |
| Production (bopd) | 2,600 | 94 | % | 82 | % | 75 | % |
| 2,800 | 87 | % | 75 | % | 69 | % |
If the price of oil is $95.00, and the production churns out 2400 barrels of oil per day (bopd), the POR is only 50%. So. it the bopd drops at times, but we all know the price of oil 'will maintain around $95' - OPEC is always in action,... at most is the POR will go up to 90%, which leaves it room for another 10% as retained earnings.
We still get our dividends at 90% POR.
The SUSRAT might be affected if the bopd drops, but we know that SUSRAT is actually Capex being added into the total dividend payouts. I would just control my capital expenses, ie not buy too many machines and physical assets during such times when the bopd cannot touch 2400 barrels. Then wait for the production level to ramp-up again before I make payments to my suppliers or order more physical assets.
| Capital Expenditures + Unitholder Distributions | = | Sustainability Ratio |
| Funds flow from Operations |
With the above, we will still get our dividends.
Of course, the bopd reading cannot be down for too many quarters.
Hence, with the above analyses, I am not too worried, yet. At least, I would look at it this way.