Baytex shares tumble as company cuts spending target, halts dividend

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Baytex Energy Corp. halted its dividend and chopped its spending target this year, blaming the relentless slide in U.S. oil prices that has rendered some of its projects uneconomic and fuelled a sharp selloff in energy markets.

Baytex shares skidded as much as 17 per cent in Friday trading on the Toronto Stock Exchange after the Calgary-based company said late Thursday it would suspend its monthly dividend of 10 cents a share following a payment due Sept. 15.

The company also slashed its spending target this year to $500-million and said it anticipated cutting next year's budget by 25 per cent, to between $350-million and $400-million.

The moves reflect U.S. oil prices that have tumbled to near $40 (U.S.) a barrel in under two months, rattling investors already on edge after months of cutbacks and austerity in the energy sector.

Baytex joins Crescent Point Energy Corp. and numerous others that have pared or scrapped payouts to shareholders entirely to cope with the rapid deterioration in energy markets, underscoring continued weakness in an industry that has already shed thousands of jobs and shelved billions in spending plans.

"I think a lot of producers now are forced to accept reality and mark their forward-looking crude pricing assumptions to the current strip," or about $48 into 2016, said Thomas Matthews, analyst at AltaCorp Capital Inc.

"If you're not planning for the worst case scenario and really evaluating your business based on that pricing assumption, you're not doing your due diligence as a management team."

Hopes for a recovery in oil prices have been squelched as oversupply concerns mount and fears spread over a weakening Chinese economy. U.S. West Texas Intermediate oil on Friday fell 2.1 per cent to $40.45 (U.S.) a barrel, ending its longest weekly losing streak since 1986.

Several analysts on Friday said Baytex's moves were prudent given the shaky outlook for oil markets. At current prices, the company would have incurred about $220-million (Canadian) in debt to sustain the dividend and a budget of $525-million, straining its balance sheet, Mr. Matthews said in a note.

Baytex last year bought Australian-based Aurora Oil & Gas Ltd. in a deal valued at $2.8-billion, including about $900-million worth of debt. Since then, it has chopped its dividend to the current level from a high of 24 cents per share, and raised about $632-million by issuing shares at $17.35 each – moves aimed at shoring up finances strained by oil's collapse. On Friday, the stock closed down 10.6 per cent at $5.93.

The company has managed to wrangle down costs at its Eagle Ford operations. However, "difficult but necessary steps" were needed to cope with the sharp plunge in oil prices since June 30, chief executive James Bowzer said in a statement.

WTI for delivery next year is fetching about $48 (U.S.) per barrel, down 26 per cent from the second quarter, while future prices for Western Canada Select oil sands crude have slumped 32 per cent, to about $34 a barrel, according to Baytex.

As a result, the company said it is suspending drilling in Peace River, Alta., and at its Lloydminster heavy oil properties – despite cutting costs in those regions by 20 per cent. The company also lowered its production guidance this year to 84,000 to 86,000 barrels of oil equivalent per day, from 84,000 to 88,000 oil-equivalent barrels previously.

"It is imperative that we position our company to withstand the current low commodity price environment," Mr. Bowzer said.

The dividend would be reinstated when commodity prices recover to a "supportive" level, the company said without providing specifics.