The severe downturn in the oil and gas industry caused by the 70% drop in oil prices since 2014 has led a lot of companies to slash or eliminate the dividends they pay out to shareholders. Could Apache Corp. (APA) be next?
The Houston-based exploration and production firm would be in good company. ConocoPhillips, Anadarko Petroleum, Devon Energy, Encana, Marathon Oil and Noble Energy have all cut their common dividends in recent months (Anadarko by 80%) while others, including QEP Resources, have eliminated dividends entirely.
Just last week Southwestern Energy tried a slightly different tactic, saying it will pay its $27 million quarterly preferred dividend with common shares in lieu of cash. While the move will dilute the value of existing stockholders' shares, it will help the company bridge the gap between its cash flow and its expenditures.
"It's a sign of the times with gas below $1.90/mcf [thousand cubic feet]," energy-focused investment bank Tudor, Pickering, Holt & Co. Securities wrote in a note March 17.
One company that pays a meaningful dividend that hasn't made any adjustments is Apache. On its fourth quarter earnings call last month, management emphasized that it hasn't cut the $400 million per year payout because the company doesn't have any near-term liquidity need. The company's balance sheet is in decent shape -- it had $1.5 billion at the end of last year and it has few near-term debt maturities ($650 million due in 2018 and 2019) -- and its international assets have more resilient cash flow in a low-price environment than many North American resource plays, analysts say.