Vermilion shares fall after it cuts dividend due to virus hit on oil prices

CALGARY — Shares in Vermilion Energy Inc. fell by as much as 16 per cent Friday morning after it cut its dividend in half to deal with weakness in commodity prices linked to economic fallout from the novel coronavirus.

CEO Tony Marino told a conference call to discuss fourth-quarter results that COVID-19 has altered individual, business and government behaviour and that’s negative for global economic growth, oil demand and commodity prices.

“Oil prices have declined by more than US$20 per barrel from the peak we saw earlier in the year and natural gas prices have also further weakened since that time,” he said.

“It’s not our belief that COVID-19 significantly alters the long-term prospects for the oil and gas industry and, ultimately, we expect a recovery and resumption of a positive trend for commodity prices.

“However, we do think the recovery in oil prices we began to experience in 2020 will be pushed back for an unknown period.”

Marino said the company is prepared to chop its $450-million 2020 capital spending budget by as much as 15 per cent if commodity price weakness continues or worsens.

The Calgary-based company’s stock fell $2.05 to $10.66 in early trading after it said it will now pay a monthly dividend of 11.5 cents per share, down from its previous rate of 23 cents per share. The stock closed Thursday at $12.62, its lowest level this year and about one-third of its 52-week high of $36.84 set last April.

On Thursday, Alberta’s chief medical officer of health confirmed the province’s first presumptive case of COVID-19, involving a woman in her 50s who lives in the Calgary area.

Meanwhile, Calgary-based Parkland Fuel Corp. — which sells fuel in Canada, the United States and the Caribbean — said Friday it is braced for the virus but hasn’t yet seen any negative impact.

“We’re continuing to monitor the situation very closely. But at this point, it’s hard to tell what the potential impact will be,” CEO Bob Estey told a conference call to discuss fourth quarter results.

He said the company’s retail sales are primarily driven by population growth, with some sensitivity to economic growth, but its commercial and diesel demand tends to track the economy and could be affected by the virus.

On Friday, Moody’s Investors Service said it has reduced its baseline growth forecasts for all G20 economies because of the outbreak.

“It now seems certain that even if the virus is steadily contained, the outbreak will dampen global economic activity well into Q2 of this year,” it said, adding weak demand will translate into “generally subdued” commodity prices and volatile oil prices.

Vermilion’s dividend cut had been predicted by some financial analysts given its steep share price decline over the past year. Some suggested the company could have cut more from its payouts.

“Given the yield at close yesterday was about 22 per cent, the right-sized payout ratio still offers an appealing 11 per cent yield, and the financial sustainability of the business is directionally improved,” said analyst Patrick O’Rourke of AltaCorp Capital in a report.

Vermilion reported production of about 58,600 barrels of oil equivalent from its Canadian operations in the fourth quarter of 2019.

The rest of its total production of nearly 98,000 boe/d came from its operations in Australia, the United States and Europe.

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