Dividend and DRIP Program
I have been a long term “investor” in CPG since late 2008 when they were an “INCOME Trust”.
To date they have kept to the “INCOME Trust” model. Distribute as much cash to the Unit/Shareholders as possible.
They have also relied heavily on the DRIP program to free up cash for Capex.
DRIP programs are by their nature dilutive and the dilution compounds over time.
DRIP shares Begat DRIP shares.
Through the bad times they have maintained the 23 cent / month distribution and have resisted the pressure to raise it during the good times.
More often than not CPG shares have traded at a higher multiple than most of their peers and they have been able to use that to raise cash to make some very good acquisitions and keep the Corporate Debt very manageable.
On a per share basis to date they have done a good job increasing both the production and reserves in spite of the “Dilution by DRIP”.
Although the Corporate Debt remains quite manageable on a per share basis it has been rising.
Dec 31 / 14 Net Debt/Share $7.15
Dec 31 / 13 Net Debt/Share $5.26
Dec 31 / 12 Net Debt/Share $4.70
Dec 31 / 11 Net Debt/Share $4.22
Dec 31 / 10 Net Debt/Share $4.18
Dec 31 / 09 Net Debt/Share $1.77
Dec 31 / 08 Net Debt/Share $5.82
It will be interesting to see the consequences of the recent activity.
As a long term CPG shareholder that would like to continue being a shareholder I think it may be time for Crescent Point to rethink their financial strategy.
As I retiree I do like Dividends but Total Return is more important. If my dividend income isn’t quite enough to keep the “Beer Fridge Full” I can sell a few shares now and then.
From the info from IR that NorthSun shared with us it appears that the current DRIP participation is abt. 30%. A sub $20 share price will result in a lot of Dilution by DRIP.
In my opinion if the Dividend was cut abt. 50% and the DRIP participation was also reduced by 50%. (They could do that by shutting it down to new shares and reducing the current eligible shares by 50% prorated) the net result would be more cash for Capex and greatly reduced dilution.
There is no doubt that a lot of retail “yield junkies” would squawk but the Institutional Investors and the market in general would likely view a move like that as positive.
Crescent Point’s revised 2015 production guidance is 163,500 bbl/day.
I don’t know exactly what CPGs corporate decline rate is. I think that it’s in the area of 25% or a bit higher. That means that in 2016 the Capex program will need to generate abt. 40,875 bbl/day of new production (at 25% decline) to maintain the revised guidance.
Crescent Point’s Capex programs have been very effective (arguably among the best in the business). That said maintaining the revised guidance in 2016 from the current assets is going to require a lot of cash.
In my “opinion” as I said reducing the dividend and reining in the DRIP program would actually free up more cash for Capex and would help get the “All In POR” (Cash Dividends, Value of DRIP Shares and Capex) down from the current abt. 150% closer to 100% where it should be and also viewed as positive.
As for the price of Oil. There is no shortage of theory’s re what is going on and in the end it doesn’t actually matter.
The reality is that at $100 there is lots of Oil available.
There is a lot of “potential” relatively low cost Oil available in the Middle East and North Africa but not nearly enough to supply the world.
At $50 or less the current “Alleged Glut” will become a “Real Shortage” before too long.
When that happens Canadian Producers like Crescent Point that have good assets that can keep their balance sheets healthy with a minimum of dilution will be in an excellent position to reap the rewards.
Between now and then it will likely be a rough ride and some of the overleveraged companies will go belly up.
As Always; Do Your Own Due Diligence; It’s Your Money !!