Dump trucks loaded with oil sands drive through the Suncor Energy Inc. mine in this aerial photograph taken near Fort McMurray, Alberta, Canada, on Thursday, June 4, 2015.Ben Nelms/Bloomberg
Dividend growth is back on the table for some of the biggest oil sands producers, even as crude prices struggle to top $50 (U.S.) a barrel.
Stung by more than two years of slumping oil prices, several bitumen producers cut or scrapped payouts to investors or halted share buybacks to conserve cash. Now, some of them are signalling that payments may be on the rise if and when a commodity rebound takes hold.
Companies seen as best-positioned to return more cash to shareholders as oil prices rise are Imperial Oil Ltd., Suncor Energy Inc., Canadian Natural Resources Ltd. and even Husky Energy Inc. The latter eliminated its cash dividend in 2015.
Suncor and others that pressed ahead with major growth projects through the downturn are poised to start generating significant levels of cash next year as spending on the multibillion-dollar expansions gears down, Raymond James Ltd. analyst Chris Cox said.
Meanwhile, the industry is reluctant to sink capital into brand-new projects, increasing the likelihood that executives may elect to reward investors.
"It seems unlikely that the industry is going to be deploying capital aggressively in the oil sands, which means that you're likely just going to return that back to shareholders," Mr. Cox said. Suncor offered the clearest indication yet that dividend growth is a priority following recent asset sales and the completion of a $2.9-billion (Canadian) share issue earlier this year. The Calgary-based company on Monday struck a deal to sell its lubricants business to a unit of U.S. oil refiner HollyFrontier Corp. for $1.13-billion.
The move followed the sale of a 49-per-cent interest in an oil-storage facility in Northern Alberta to two First Nations in separate deals that are expected to generate roughly $500-million in proceeds upon closing next year.
Last week, chief executive officer Steve Williams played down speculation the company was building a war chest for future acquisitions, saying recent strength in oil prices had eased pressure on sellers. He also said Suncor is unlikely to approve major new projects in the near future. Rather, spending for 2017 is projected to drop to about $5-billion from around $5.9-billion this year, leaving room for dividend growth or a resumption of buybacks as production ramps up from its Fort Hills bitumen mine and Hebron joint venture offshore Newfoundland, he said.
"If things continue the way they look to be continuing, you will see movements on both of those fronts, and it could be sooner than perhaps we'd anticipated," Mr. Williams said on a conference call. Some analysts said a return to dividend growth is more plausible with oil prices above $50 (U.S.) a barrel, and that even big companies with financial heft are likely to wait for a more sustained recovery to emerge.
West Texas intermediate oil tumbled $2 to $46.70 on Monday, pressured by doubts that members of the Organization of Petroleum Exporting Countries will be able to engineer an output cut as planned when the cartel meets in Vienna on Nov. 30. Indeed, executives are circumspect about reversing earlier cuts. "We will be a bit cautious about it," outgoing Husky chief executive Asim Ghosh told analysts last week.
Cenovus Energy Inc., which ended the third quarter with nearly $3.9-billion (Canadian) in cash on its balance sheet, plans to revisit its dividend policy as part of planning for 2017, chief executive officer Brian Ferguson said. It has slashed the payment twice since the downturn began.
A reversal could signal there are fewer opportunities to reinvest in the sector, including mergers and acquisitions, said Martin Pelletier, portfolio manager at Trivest Wealth Counsel Ltd. in Calgary.
However, General Electric Co.'s move on Monday to combine its oil and gas unit with oil field service company Baker Hughes Inc. shows there are still opportunities for deal-making, he said.
"So if they start increasing dividends and start doing share buybacks, I would view that as a negative on the industry, not necessarily for those companies," he said.