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CALGARY – One of Canada’s largest drilling companies slashed its dividend in half after posting a quarterly loss as provincial government attempts to ease pain in the oilfield services sector do not appear to be working yet.
Shares in Ensign Energy Services Inc. fell 14 per cent, or 38 cents, Tuesday to $2.30 each after the Calgary-based company announced it would cut its quarterly dividend to six cents per share from 12 cents and also cancel its dividend reinvestment plan “in recognition of prevailing industry conditions.”
Conditions in the drilling industry continue to be bleak as spending by oil and gas companies declines as a result of low oil and natural gas commodity prices. The number of rigs actively drilling in Canada has fallen 29 per cent over the last year, to 140 from 196, according to Baker Hughes data.
Ensign said it would look to use the money it saves from a lower dividend “to pursue alternative uses of available cash” as oilfield activity continues to slow.
“Quite simply, the board decided to address the dilution and eliminate the DRIP while at the same time maintaining the same cash payout,” Ensign president Bob Geddes said during an investor call Tuesday.
Ensign spent $947 million to buy rival Trinidad Drilling Ltd. last year, which expanded its footprint in both Canada and the United States. Largely as a result of the acquisition, the company reported Q3 revenues of $394 million, a 36 per cent increase from the same period a year earlier.
However, the company also posted a larger net loss of close to $38 million, compared with a net loss of roughly $33 million a year earlier.
“While we believe shares of Ensign will likely face near-term headwinds due to its dividend cut, we nonetheless believe the cut is a prudent decision given current fundamental uncertainty,” Canaccord Genuity analyst John Bereznicki said in a research note.
Under pressure from major oil companies including Canadian Natural Resources Ltd., the Alberta government has recently attempted to boost the drilling industry by easing limits on conventional oil production.
Last week, the government — which has imposed production limits on oil producers throughout the year amid a crunch for available pipeline space — announced that producers drilling new conventional oil wells would not be subject to curtailment orders on those wells.
“That will encourage some operators to put a few more Ensign rigs to work this winter,” Geddes said, adding the company has just signed a two-year contract for two rigs in Canada at higher rates.
We believe the cut is a prudent decision given current fundamental uncertainty
Ensign’s main rival, Precision Drilling Corp., applauded Alberta’s decision as an “important step for customer planning and investor sentiment” heading into 2020.
“We view this decision as positive for both our oil and gas customers and the province and believe the decision will encourage increased investment, support energy sector jobs and help with needed stability in the Canadian energy sector,” Precision chief executive Kevin Neveu said in a release.
However, it is unclear how many oil and gas producers will boost their capital spending or drilling activity as a result of the provincial order.
Imperial Oil Ltd. chief executive Rich Kruger on Tuesday said that lifting limits on conventional oil drilling is “not going to affect us in any material way.”
Kruger has been a long-time vocal critic of Alberta’s imposed production limits, saying they interfere in what he said should be a free market.
“These things are all tinkering around the edges,” he said of the easing of limits on conventional drilling, adding that his company would be willing to spend more money in 2020 if the curtailment order were lifted but not otherwise.
“If you lifted that constraint, yes we’d be looking at other opportunities,” Kruger said.
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