# Dividend safety of Canadian oil stocks



## GOB (Feb 15, 2011)

Since a lot of us seem to be invested or starting to dip our toes in, I thought this might be a good topic for some of the better informed posters to post about. I have a few investments in oil, mostly as long term high dividend or dividend growth plays. I have to admit I'm not as deeply knowledgeable as I probably should be about some of these companies' ability to continue to grow or sustain their dividends at $60-70 WTI for a 12+ month period. If anybody with the knowledge on hand could provide a brief synopsis for the following, it would be very valuable to myself and many others. 

SU
HSE
BTE
COS
CPG
LRE
CVE

The above are the stocks of greatest interest in the individual stocks forum, but feel free talk about any others too.i assume the pipeline companies are less impacted and their dividends are fairly safe.


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## avrex (Nov 14, 2010)

I've always wanted to do a study to see what level of financial pain that a company might endure, before they finally feel that they must cut their dividend.
However, I've never got around to doing such a historical study.

For fun, let's take a quick look at some of the oil companies that you mention above, in the 2008-2009 time frame (i.e. the Recession).

Companies like SU.TO, IMO.TO didn't pay much of a dividend. And so, in 2009, neither of them had to cut their dividend. 
CVE.TO wasn't paying a dividend at all. 

Let's look at four other companies.
HSE.TO, COS.TO, BTE.TO, CPG.TO.
*All of these companies cut their dividend in 2009*.

What did the financial metrics look like, for these companies, back in 2009?
Metrics like their Sales, ROA, and Cash Flow all went down. 
Not down a bit, ...... but significantly.

What about today?
These types of metrics are going down. But, not significantly...... yet.
We'll need to keep on eye on things.

Here's another interesting metric. 
The Dividend Yield %, on 2008-12-31, of COS.TO, BTE.TO, CPG.TO was,
18%, 18%, 11%, respectively.
In 2009, those companies *all cut their dividend.*

*[Update 2014-12-05: Correction as noted in the post below. 
BTE.TO and CPG.TO did not cut their dividend in 2009. 
I was relying on third-party data for this dividend information. 
This information is not always 100% correct.]*

A few months ago, all three companies had a dividend yield value of around 6%. 
Today those values have increased quickly to, 
10%, 12%, 10%, respectively.
Can these dividend yields be supported?


Based on current financial metrics, here's my ranking of the companies today.
IMO.TO, CVE.TO, HSE.TO, SU.TO, BTE.TO, COS.TO, CGP.TO


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## humble_pie (Jun 7, 2009)

avrex CPG has *never* cut its dividend. 

it commenced life with a $.17 dividend in 2003. The dividend amount increased steadily to .20 in 2008.

in july 2008, CPG began paying the present dividend of .23 per month, an amount it has paid steadily ever since.

interestingly, this is the 2nd time that an impeccable source - in this case yourself - has misrepresented CPG financials & posted incorrect information here in cmf.

i believe that in both cases, the misunderstandings arose because the parties - yourself & the other poster - were using 3rd party data bases that are thought to be reliable. Except. When they are not reliable.

in july 2009 crescent point converted from a unit trust to a corporation. The shares converted one-for-one & the $.23 cent dividend did not change. The divvie continued to roll out at .23 every month, throughout the entire year, without a hitch.

i can't emphasize too much the need for taking all data base extractions with a big grain of salt. In my experience they are full of errors. This is not because of sloppy performance by the data providers, who are usually reliable companies such as Thomson Reuters.

the errors happen because companies are live, active, dynamic, evolving organisms, each with a myriad of unique new developments over time. Most data bases are not designed to be able to capture all of these developments accurately, so errors creep in at these historic change points.

it looks as if the data base you were sourcing had some difficulty processing details for the 2009 CPG corporate reorganization. Sorry i don't know about baytex or COS dividend histories.


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## james4beach (Nov 15, 2012)

Dividend yield is the wrong way to look at this. You really need to look at their cashflow statements and to a lesser extent, the income statements.

Lucky for you, all of these are public! (But nobody will read them)

You should also consider their debt loads because growing debts, and in particular debt repayments due soon, can have a huge impact on cashflow.

These are not easy things to analyze. You're not going to get good results simply by looking at dividend yield and P/E ratios or anything like that.


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## avrex (Nov 14, 2010)

humble_pie said:


> CPG has *never* cut its dividend.
> 
> i believe that in both cases, the misunderstandings arose because the parties - yourself & the other poster - were using 3rd party data bases that are thought to be reliable. Except. When they are not reliable.


Thanks for pointing out that the dividend data, for CPG, that I discovered on http://longrundata.com/ is incorrect.
Looking at the CPG dividend history on Yahoo, looks more reliable (i.e. dividend .23). Rechecking the others, on Yahoo, it would appear that BTE.TO also *did not* cut their dividend in 2009. Similar to CPG, BTE was also an income trust that converted to a corporation. That must be where the problem in the database lies. I guess it didn't handle the conversion properly.

When I do an exercise like this, where I want to quickly look at *many* financial metrics of *many* companies in one sitting, I will utilize 3rd party data bases. 
I mostly use StockRover and GlobeInvestor. 
My hope is that the data on such websites are accurate. 
However, as we've discovered in the example above (and others), it's not always accurate.

To do a deep-dive of an individual company's financials, I would agree, you need to go right to the source and get the company's financial report.


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## CPA Candidate (Dec 15, 2013)

james4beach said:


> Dividend yield is the wrong way to look at this. You really need to look at their cashflow statements and to a lesser extent, the income statements.


Thank you! Drives me crazy when people think a yield figure is indicative of it's sustainability. The yield is more a measure of perceived risk or sentiment by the market, which may or may not be rational.

Of course when it comes to oil, many companies have sold forward their production, so the current oil price is only partially relevant in the near term. All companies provide hedging info in their financial statements. The market doesn't seem to care about hedging and will sell a well hedged company down just as hard.

I know that White Cap has nearly 50% of 2015 liquids hedged in the 90s. They are sitting pretty but the stock has still been killed.

I own shares in a junior called Yangarra that has 60% of 2015 liquids hedged and it has been disemboweled. They'll get through 2015 just fine but nobody cares.

CPG has about 25% of 2015 liquids hedged and hedging into 2016 (20%) and even 2017 (insignificant). With the asset quality, high netbacks and DRIP program, I think a dividend cut would only be after a prolonged bear market in oil (years).

If you wanted to get in now I'd seriously consider just buying XEG has not having company specific worries, though.


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## the-royal-mail (Dec 11, 2009)

Yes, chasing dividend yield is a dangerous game for sure. I am reminded of the poor folks here who jumped into LRE due to its div yield. OK, but at the time we discussed it the share price was around $4.50. Now it is $1.77. They're lost a lot of capital but when you lose that much the dividend yield might not help very much.


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## GOB (Feb 15, 2011)

james4beach said:


> Dividend yield is the wrong way to look at this. You really need to look at their cashflow statements and to a lesser extent, the income statements.
> 
> Lucky for you, all of these are public! (But nobody will read them)
> 
> ...


Well, that's exactly why I've posed the question. I'm asking about dividend safety which of course involves looking into everything you mentioned. My hope is that there are people here already intimately familiar with this data for some of the companies listed and can share their knowledge. Yes, I could look it up myself with enough time, but the point of the forum is to share what we know, right?

I think people may be misinterpreting my question? I'm only interested in chasing yield that is sustainable - I don't just look at a yield and buy a stock. I'm just looking for more detailed information (such as what CPA Candidate has provided) that may be in the heads of others rather than chasing it down myself. I provide a lot of info in the AAPL thread- all of it readily available on the interent but it helps others to share what I know. 

I was one of those who bought LRE (much lower than $4.50) but it wasn't purely because of the yield. A strong fundamental case was made for it which led me to deciding to invest.


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## Synergy (Mar 18, 2013)

CPA Candidate said:


> If you wanted to get in now I'd seriously consider just buying XEG has not having company specific worries, though.


That's what I decided on yesterday. After taking a tax loss sale on a few name I purchased XEG. I'll wait until some of the smoke clears and my 30 day period has elapsed before getting back into some individual names.


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## avrex (Nov 14, 2010)

Yikes, guys.
I never said 'buy' based on dividend yield.
I just thought it was interesting that in these examples, companies cut their dividend, probably as people were buying, possibly based on dividend yield.

My warning was to watch out for unsustainable dividends.

Yes, I am saying look at Cash flows, etc.


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## gibor365 (Apr 1, 2011)

As I mentined in other thread, imho , the most sustainable dividends in this sector on TSX: SU, CNQ, HSE , on NYSE: CVX, XOM, COP


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## AltaRed (Jun 8, 2009)

Add IMO and possibly CVE to the list of SU, HSE and CNQ.


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## gibor365 (Apr 1, 2011)

AltaRed said:


> Add IMO and possibly CVE to the list of SU, HSE and CNQ.


I ignored IMO as cannot say it's a real dividend stock (with yield about 1%)

Agree about CVE ... btw, it has the highest yield in last 10 years and maybe in history... if I wasn't alreadt pretty heavy in oil, would buy it even today


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## AltaRed (Jun 8, 2009)

Some of the best dividend paying stocks are those with dividend yields under 2%. It's a travesty to exclude railoads, consumer staples/discretionary, Brookfield, Home Capital, CCL, ShawCor, etc. from a dividend paying portfolio.


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## Synergy (Mar 18, 2013)

AltaRed said:


> Some of the best dividend paying stocks are those with dividend yields under 2%. It's a travesty to exclude railoads, consumer staples/discretionary, Brookfield, Home Capital, CCL, ShawCor, etc. from a dividend paying portfolio.


I agree. They`re great names for younger folks that don`t require income from their investments and want a good balance between capital gains and growing dividends.


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## gibor365 (Apr 1, 2011)

Synergy said:


> I agree. They`re great names for younger folks that don`t require income from their investments and want a good balance between capital gains and growing dividends.


Dividend growth usually going down when yield raech 4-5%


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## Beaver101 (Nov 14, 2011)

gibor said:


> Dividend growth usually going down when yield raech* 4-5%*


 ... who benchmarks that yield (4-5%)or how is that benchmarked? or just what everyone thinks it should be?


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## gibor365 (Apr 1, 2011)

Beaver101 said:


> ... who benchmarks that yield (4-5%)or how is that benchmarked? or just what everyone thinks it should be?


No one benchmarks, but 4-5% yield is considered reasonable yield for solid blu chip stocks in dividend-investment world... just check dividend aristocrats ... you will see that higher the yield, less the dividend growth.... the are the few exceptions, like MO


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## Beaver101 (Nov 14, 2011)

When inflation is rumping up, that 4-5% is hardly considered reasonable ... only dividend aristocrats say so.


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## doctrine (Sep 30, 2011)

With oil at $65 US, anything with a yield above 5% is potentially suspect (and definitely if it drops below $60), and anything above 10% is probably being cut if oil stays here for more than 3 months. There still might be value though, some yields are just crazy and plenty of companies selling for less than 50 cents on the dollar of net tangible asset value. BTE, for example, might do quite well in a few years even with a big dividend cut. And BNE has a 9% yield with one of the lowest debt levels of any of the dividend paying producers. Crazy days - I would say there is definitely blood in the streets of the mid and small cap oil producers. Reminds me of 2008-9 (this sector only though).


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## Synergy (Mar 18, 2013)

gibor said:


> Dividend growth usually going down when yield raech 4-5%


The CDN banks do pretty good with a yield in the range of 3-4%


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## dime (Jun 20, 2013)

Good topic. If you haven't seen it yet, see my "dividend stocks with high payout ratio" posting from a few days ago where I posted a list from the TMX website of stocks with payout ratios over 100% last week.

I imagine the fear of a dividend cut is part of the reason for the mass exodus of capital away from these stocks. Seadrill is a perfect example. 

I'm pretty sure there's lots of investors who are now looking close at the dividend payout ratio to note which stocks are at greater risk of not having the dividend covered by earnings. 

But what confuses me is when people say it's not just earnings that matter when it comes to covering the dividend but also cash flow?


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## AltaRed (Jun 8, 2009)

dime said:


> But what confuses me is when people say it's not just earnings that matter when it comes to covering the dividend but also cash flow?


Because on a real time (short term) basis, it is cash (free cash flow) that pays dividends, not earnings. Earnings include non-cash items like DD&A. Earnings are important longer term to reflect whether the company has deployed capital effectively and is creating value to the shareholder but for near term crises, cash (along with a healthy balance sheet) helps determine the survival of the company.


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## gibor365 (Apr 1, 2011)

doctrine said:


> And BNE has a 9% yield with one of the lowest debt levels of any of the dividend paying producers. Crazy days - I would say there is definitely blood in the streets of the mid and small cap oil producers. Reminds me of 2008-9 (this sector only though).


Interesting what gonna be with EGL.UN with 30% yield ... they sold part of their assets in the US at the top of the of the market. Now they can invest their proceeds at the bottom of the market (and shareholders now voting if EGL.UN can expand into Canada). EGL.UN has no debt, with cash to make a deal, 80% of oil production hedged at about $97US till June 15th and 80% hedged at over $80US till the end of 2015.


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## Beaver101 (Nov 14, 2011)

gibor said:


> Interesting what gonna be with EGL.UN *with 30% yield *... they sold part of their assets in the US at the top of the of the market. Now they can invest their proceeds at the bottom of the market (and shareholders now voting if EGL.UN can expand into Canada). *EGL.UN has no debt*, with cash to make a deal, 80% of oil production hedged at about $97US till June 15th and 80% hedged at over $80US till the end of 2015.


 ... that's waaaay above the ideal yield range indicated above ... so this is an exception, any more?


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## gibor365 (Apr 1, 2011)

Beaver101 said:


> ... that's waaaay above the ideal yield range indicated above ... so this is an exception, any more?


Canadian oil small caps are completely different "animal".... WhenI was talking about ideal 4-5% yield, I meant dividend aristocrats, champions, contenders.... stocks that are raising dividends for at least 15 years... If you check those stocks , you will see that stocks who yield about 5% increase dividends by just 2-5% annually, and stocks with yiled less than 2% - increase much more... but when those stocks will have higher yield, most likely growth will be less...
and even if low yielding stocks continue to increase dividend by high %, it doesn't mean your income from dividends will be better...
as an example take stock like CNR with 1% yield and assume they every year will increase dividend by 15% (even though the last increase was already less than 10%)...in 20 years your Compounded Dividend Return will be 168%
Now, take higher dividend stock like At&T , assume they have 5% yield and growth only 2%.... in 20 years your Compounded Dividend Return will be 225%!


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## dime (Jun 20, 2013)

Here's a good article on the topic from Bloomberg news today:

"Canada’s Oil Dividends Threatened as $70 Crude Hurts Cash"

http://www.bloomberg.com/news/2014-...idends-threatened-as-70-crude-hurts-cash.html


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## Canuck (Mar 13, 2012)

guess this one's safe...

holly crap

http://www.nasdaq.com/article/enbri...2015-adj-eps-view--quick-facts-20141203-01294


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## 0xCC (Jan 5, 2012)

COS kicked off the dividend cuts last night when they announced their 2015 budget. A reduction from $0.35/share per quarter to $0.20 ($1.40/year to $0.80/year).

http://www.cdnoilsands.com/Media-Ce...-Oil-Sands-Announces-2015-Budget/default.aspx

Of course they were probably the most vulnerable since the oil sands in general are a high cost oil source. And this is pretty much exactly what OPEC is trying to do by their current manipulation of oil prices.


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## Synergy (Mar 18, 2013)

^unlike other companies, COS doesn't use any hedging and as a result they are directly tied to the price of oil. You get direct exposure to the price of oil, which is great when oil is going up and not so great for times like today!


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## gibor365 (Apr 1, 2011)

> COS kicked off the dividend cuts last night


 maybe we need to open separate thread about dividends cuts  COS wasn't first and looks like won't be last ....


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## Canuck (Mar 13, 2012)

gibor said:


> maybe we need to open separate thread about dividends cuts  COS wasn't first and looks like won't be last ....


yup

next up, my guess BTE, CPG, LRE and SGY.

Thinking maybe HSE is one of the safest right now?


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## webber22 (Mar 6, 2011)

COS has no hedging program so that's why they cut theirs right away. BTE, CPG, PGF are the ones off hand that have hedging in place for 2014-15. The oil price seasonally rebounds around the end of February, so they might wait till then to review the dividend


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## gibor365 (Apr 1, 2011)

webber22 said:


> COS has no hedging program so that's why they cut theirs right away. BTE, CPG, PGF are the ones off hand that have hedging in place for 2014-15. The oil price seasonally rebounds around the end of February, so they might wait till then to review the dividend


Who has the best hedging? Any specific numbers...esp about BTE, CPG, LRE?!
p.S. I've read that EGL.UN 80% of oil production hedged at about $97US till June 15th and 80% hedged at over $80US till the end of 2015. 
P.P.S. From this bunch . LRE looks as next to cut


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## HaroldCrump (Jun 10, 2009)

CPG cutting its dividend would be a very significant market-moving factor, even more than the effect of COS cut this morning.
It will likely cause a massive slide in stock prices of _other_ Canadian oil stocks and royalties across the board, even large cap ones like Suncor and Husky Energy.

Regarding Husky, they have been preparing for this sort of thing since the summer.
The CEO has said that balance sheet strength is paramount.
http://www.cbc.ca/news/business/husky-cenovus-note-impact-of-low-crude-prices-on-earnings-1.2810634

Will they have to cut their dividend...it's plausible if both WCS and NG keep going down, given that their realized prices was below $70 last quarter.
However, as long as prices stay above $60 for WTI, I'd say Husky dividend cut is _unlikely_.

There are many other things that can do to shore-up the balance sheet, such as reduce capex, sell off undeveloped assets, etc.
The dividend + the DRIP discount is a major source of wealth for its owners, and cutting the dividend will defeat the goals of its majority shareholding family.
They will do it, of course, if they _have_ to.


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## gibor365 (Apr 1, 2011)

OK, found about BTE:
Q4/2014: 51% hedged at $96.45
Q1/2015: 45% hedged at $96.54
FY 2015: 24% at $94.66

CPG
Q4/2014 61% around $96
2015 35% around $95
2016 21% around $90
2017 some peanuts 

LRE
Currently 65% hedge for 2014
and 20% for 2015 - much worse than BTE and CPG

another LRE statement I just don't understand "Able to hedge 75% of 2014 , 75% of 2015 and 50% of 2016".... what do they nean by ABLE?


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## GOB (Feb 15, 2011)

From the Bloomberg article posted previously...a pretty strong statement from CPG's CEO...maybe a little rash?



> Some companies are also partially shielded from oil’s slide after locking in future prices with hedging. Crescent Point had 37 percent of its 2015 output secured at prices above C$93 a barrel as of Oct. 28, the company said in its third-quarter earnings statement.
> 
> “This is a great investment opportunity for people to collect a pretty high yield on a low-risk company,” which has never lowered its dividend through six downturns in the price of oil, Crescent Point Chief Executive Officer Scott Saxberg said today in a phone interview. “Our hedging program keeps our cash flow strong and allows us to maintain our dividend, maintain our capital program and battle through this.”


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## Killer Z (Oct 25, 2013)

GOB said:


> From the Bloomberg article posted previously...a pretty strong statement from CPG's CEO...maybe a little rash?


Somewhat comforting if you own a great deal of CPG ....


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## GOB (Feb 15, 2011)

Killer Z said:


> Somewhat comforting if you own a great deal of CPG ....


I guess its meant to be reassuring, but hard to not to take it with a grain of salt when you see what happened to SDRL.

Ideally the divided will be safe, but if it ever is cut the selloff will be brutal because of comments like this.


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## Flash (Nov 25, 2014)

I'm seriously thinking of buying another ~150 shares or so from both BTE and CPG. 

Are there any other oil stocks out there that are in a better position than these 2? (w/ good looking divident security and low risk as a company for very long term investment)


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## gibor365 (Apr 1, 2011)

Flash said:


> I'm seriously thinking of buying another ~150 shares or so from both BTE and CPG.
> 
> Are there any other oil stocks out there that are in a better position than these 2? (w/ good looking divident security and low risk as a company for very long term investment)


Sure: SU, CNQ on TSX, CVX, XOM on NYSE - those 4 will be last to cut dividends


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## Canadian (Sep 19, 2013)

I can't speak for CVX or XOM as I've never really looked at them but I would be surprised if SU or CNQ cut their dividends. Their payouts are quite low and neither company is very leveraged. Also, a company like SU that is so vertically integrated I think has an advantage over a more focused company (like COS) when oil prices are so low.


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## Beaver101 (Nov 14, 2011)

gibor said:


> maybe we need to open separate thread about dividends cuts  COS wasn't first and looks like won't be last ....


 ... yes, to do a better analysis to support the theory or reality.


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## HaroldCrump (Jun 10, 2009)

Another one bites the dust...Trilogy Energy (TET) eliminates dividend after Dec.


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## 0xCC (Jan 5, 2012)

HaroldCrump said:


> Another one bites the dust...Trilogy Energy (TET) eliminates dividend after Dec.


Ouch. Went from $0.035/month (42 cents/year) on a $9.00 stock (before today). That was a 4.67% yield that went to zero with one press release...


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## My Own Advisor (Sep 24, 2012)

Yikes. The first of many I suspect.


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## avrex (Nov 14, 2010)

The selling of Cdn oil stocks continues.
Even if the price of oil stabilizes, I think in general, oil stocks will drift downward for the next quarter or two.

During a normal year, I'm assuming that Institutional investors do their tax loss selling during the last three months of the year, or so.
With the big drop in oil prices, will we see even *more 2014 tax loss selling* in the next couple of weeks?

Perhaps there are *buying opportunities in certain oil stocks* once we reach the Dec 24th tax selling deadline.


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## gibor365 (Apr 1, 2011)

> Even if the price of oil stabilizes, I think in general, oil stocks will drift downward for the next quarter or two.


 I thing apposite, if the price of oil stabilizes, strong large cap stock with low PE will start going up...


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## OurBigFatWallet (Jan 20, 2014)

Interesting article on the safety of CPG's dividend:
http://www.theglobeandmail.com//glo...rticle21976058/?cmpid=rss1&click=sf_investing

And this one on payout ratio:
http://www.theglobeandmail.com/glob...vestors-follow-the-cash-flow/article21707455/


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## Canuck (Mar 13, 2012)

and Baytex just cut....


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## supperfly17 (Apr 18, 2012)

Canuck said:


> and Baytex just cut....


Yupp from 24c/month to 10c/month


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## My Own Advisor (Sep 24, 2012)

Had to happen.


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## HaroldCrump (Jun 10, 2009)

We are talking about which oil company has hedged production and at what prices (CPG, PNG, etc.) - has anyone looked into who the counterparties are for those forward contracts?
Which investment bank, hedge fund, or ETF have maximum exposure for such contracts?

Assuming a $60 oil, if a forward contract for $110 was written earlier this year or last year, the fund/bank is on the hook for over 40% of the price now.


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## Pluto (Sep 12, 2013)

HaroldCrump said:


> We are talking about which oil company has hedged production and at what prices (CPG, PNG, etc.) - has anyone looked into who the counterparties are for those forward contracts?
> Which investment bank, hedge fund, or ETF have maximum exposure for such contracts?
> 
> Assuming a $60 oil, if a forward contract for $110 was written earlier this year or last year, the fund/bank is on the hook for over 40% of the price now.


Don't know for sure but CWB, and NA should be on the list of suspects. Their stock charts look like a dive bombing run.


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## HaroldCrump (Jun 10, 2009)

Wow, small banks like CWB are guaranteeing oil prices via forward contracts, LOL.
Oh boy...they are in for a surprise !
Hopefully they should have bought crude oil puts to hedge the hedge.


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## PoolAndRapid (Dec 3, 2013)

..


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## Gabs (May 7, 2014)

Thought it was odd NA's stock didn't go up based on the dividend hike, makes sense now if they're on the hook as a oil hedge counterparty. It's a pretty important question, haven't had much luck on google determining specifics though.


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## AltaRed (Jun 8, 2009)

I read somewhere else in the last few days that Cdn banks are not allowed to hold these hedges. They may facilitate them occurring but not be in that market themselves. May pay to dig deep and find out.


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## gibor365 (Apr 1, 2011)

AltaRed said:


> I read somewhere else in the last few days that Cdn banks are not allowed to hold these hedges. They may facilitate them occurring but not be in that market themselves. May pay to dig deep and find out.


Maybe insurance compnaies like Sunlife or Manulife holding those hedges?!


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## humble_pie (Jun 7, 2009)

HaroldCrump said:


> Wow, small banks like CWB are guaranteeing oil prices via forward contracts, LOL.
> Oh boy...they are in for a surprise !
> Hopefully they should have bought crude oil puts to hedge the hedge.




it's one thing to look for the unfortunate banks or hedge funds that may have taken on too much oil counterparty risk.

but what about the hedged oilco that finds out its counterparty has just collapsed? this company now learns that it's not going to receive those high hedged prices that are built into its strategic marketing plans after all?

people keep overlooking the fact that it wasn't Long Term Capital Management that failed. It was the counterparty to its hedge portfolio that failed, taking LTCM down with it.


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## doctrine (Sep 30, 2011)

Nice bounce today, but I feel like this was a lot of short covering, or at least people not selling. There's a lot of inflow into energy (particularly ETFs), but it has been outdone by massive selling.

That being said, oil actually ended down on the day in North America if you tracked it from open to close (although the peak low was reached in Europe before markets opened, thus a 'recovery' in the price), and is trending lower overnight. I wonder if another $1 drop in oil would bring the panic back. I was actually surprised that they held their own despite the trend of lower oil.

Everything is so low you may as well keep waiting. Why not wait for BTE to hit $25? It would still be a 50% discount to the 52 week high!


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## HaroldCrump (Jun 10, 2009)

humble_pie said:


> but what about the hedged oilco that finds out its counterparty has just collapsed?


Yup, and AIG in 2008.

That link posted above says the oil derivatives are nearly $4T at this time.
Far larger than the R/E MBSs & CDOs

Ironically, the US Fed balance sheet stands at $4.3T at this time, I believe.


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## My Own Advisor (Sep 24, 2012)

Gabs said:


> Thought it was odd NA's stock didn't go up based on the dividend hike, makes sense now if they're on the hook as a oil hedge counterparty. It's a pretty important question, haven't had much luck on google determining specifics though.


I find with O&G stocks, if they tank, the banks are carried down with them despite strong earnings and/or dividend hikes.


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## GOB (Feb 15, 2011)

> In its latest report released Wednesday, OPEC also reduced its global demand forecast to 28.9 million barrels per day, the lowest since 2002.


I find this interesting and somewhat concerning (at least for my oil portfolio - as a citizen of the earth I'm glad demand is lower). I was under the impression that demand was forecast to keep increasing by about 1% annually and would think that if anything lower prices would accelerate this. Any explanations?


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## HaroldCrump (Jun 10, 2009)

GOB said:


> I find this interesting and somewhat concerning (at least for my oil portfolio - as a citizen of the earth I'm glad demand is lower). I was under the impression that demand was forecast to keep increasing by about 1% annually and would think that if anything lower prices would accelerate this. Any explanations?


Yes - they _want_ the price to be lower.
Let's keep in mind that the acronym *OPEC *is often followed by the word _cartel_


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## gibor365 (Apr 1, 2011)

When oil at $60, 1 liter of oil cost 50 cents ?! Cheaper than water?!


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## webber22 (Mar 6, 2011)

Cheer up everyone, at this pace it will be FREE by February


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## My Own Advisor (Sep 24, 2012)

webber22 said:


> cheer up everyone, at this pace it will be free by february


lol


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## Chris L (Nov 16, 2011)

Free yes, I can't wait.


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## gibor365 (Apr 1, 2011)

gibor said:


> When oil at $60, 1 liter of oil cost 50 cents ?! Cheaper than water?!


I'd like to buy oil for 50 cents liter, much cheaper than BBQ starter 300ml about $4


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## gibor365 (Apr 1, 2011)

Holy ....:biggrin: EGL.UN yield is almost 35%... *IF* miracle happens and don't don't cut dividends, in less than 3 years , only in dividends you return your principle! Any gamblers?!


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## doctrine (Sep 30, 2011)

Remember when Goldman predicted $75 oil, back when it was $90, and everyone thought they were crazy? I bet lots of people would love to see $75 right about now.

I think oil keeps going down until there is a scenario that produces less oil surplus over the next year. Even with the capital budget cuts announced, I can't find a single company (>$1B) predicting lower oil production next year - only growth. Some shale companies in the US are still predicting 30% growth, and US shale oil is expected to grow on its own by 1 million boe/d. 

Someone has to cut actual physical production of oil. Until that happens, I think oil goes lower. The talk is more serious in the $60s, but no one is cutting production yet - just cutting back on production _growth_.


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## gibor365 (Apr 1, 2011)

> Someone has to cut actual physical production of oil. Until that happens, I think oil goes lower. The talk is more serious in the $60s, but no one is cutting production yet - just cutting back on production growth.


DOn't you think that US didn't bomb anyone for a long time?! or some uprising in Saudia can help  as well as some tsunami , earthquake or hurricane....


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## HaroldCrump (Jun 10, 2009)

gibor said:


> DOn't you think that US didn't bomb anyone for a long time?! or some uprising in Saudia can help  as well as some tsunami , earthquake or hurricane....


Those that are cynical among us might say that the Saudis are punishing the US & Canada for not bombing Iran, as proposed by John McCain years ago.
But I am not cynical, so I am not saying that :biggrin:


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## avrex (Nov 14, 2010)

I've copied tygrus quote from another thread, into this thread.

I think it provides a very interesting viewpoint on Cdn oil.



tygrus said:


> The folks in Alberta have know about the surging shale out of the US for more than 8 years. So they made big bets to try and stop it from getting a foothold. They ramped up development budgets trying to get as much as they could on stream then get it into a world price hub so they could pay down some debt and then hopefully find an operating margin that lets them continue forever while all that shale stays in the ground.
> 
> Well the US won this bet by delaying the pipelines. So the new crude didn't get into the trading hub like it was suppose to a few years ago because Keystone was stalled and our efforts to get it off shore are dead too. Gateway and Energy East are just wet dreams now. Never going to happen. So now the US is self sufficient and we have no of shore export hub. Mean while china now buys oil from Russia and Iran.
> 
> Now tell me this is a bargain scenario to buy in to?


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## AltaRed (Jun 8, 2009)

It is not true that the US is self-sufficient in oil. they produce just over 9 million barrels per day as of Dec 2014 as reported by EIA this past week. The following chart does not yet have Oct and Nov data posted.
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRFPUS2&f=M

This link shows US imports and exports http://www.eia.gov/tools/faqs/faq.cfm?id=727&t=6 for 2013, so given US production is 1 million barrels per day higher today than the same time a year ago, imports (from other than Canada) have dropped correspondingly and perhaps a bit more since Canadian exports to the USA have gone up some in the meantime (by rail). US exports are all refined products (the US can do crude swaps and does so with Canada but net crude exports are not allowed).

Depending on forward oil shale development which is likely to now stall due to low oil prices after peaking to perhaps 9.5 million barrels per day by Spring, the US will still be importing crude and refined products for some time. It is conceiveable that North America could be self-sufficient by 2020 if trends can continue (with higher crude oil pricing) but likely only if another pipeline, e.g. Keystone XL is built.


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## Cal (Jun 17, 2009)

HaroldCrump said:


> Those that are cynical among us might say that the Saudis are punishing the US & Canada for not bombing Iran, as proposed by John McCain years ago.
> But I am not cynical, so I am not saying that :biggrin:


As a whole they are probably inadvertently guaranteeing that the US comes out of the recession with low gas prices to simulate grow in the economy with additional money to make purchases on 'stuff'.

Perhaps this is Ontario's window of opportunity to get manufacturing products again, considering a lower dollar comes with lower oil prices for Canada.


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## HaroldCrump (Jun 10, 2009)

Cal said:


> As a whole they are probably inadvertently guaranteeing that the US comes out of the recession with low gas prices to simulate grow in the economy with additional money to make purchases on 'stuff'.


With thousands of layoffs in the shale sector, and over $500B of debt write offs?
That will _cause _a recession, not solve it.



> Perhaps this is Ontario's window of opportunity to get manufacturing products again


That ship has long since sailed.


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## the-royal-mail (Dec 11, 2009)

I think the Saudis are trying to keep the price low on purpose, so that the pipelines are deemed not economically feasible at these prices. The pipelines get cancelled, them wham the price of gas shoots up and we'll be stuck in their grip for the forseeable future, wishing we had of built the pipelines anyway.

Hopefully TRP finishes their projects, so that we're less dependent on foreign oil over the long term.


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## etfstrader (Sep 26, 2014)

I read the financial news sometime last week saying that Saudis don't want to reduce their oil production mainly because they don't want to lose their customers. Keeping oil prices low like this for a period of time will put many small energy firms out of business, which means less competition later on, right? So, I guess it's a win-win situation for Saudi once demand goes up and supply goes down.


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## gibor365 (Apr 1, 2011)

Don't think Saudis came to this idea alone  Some OPEC members like Iran, Venezuela, Nigeria ... cannot sustain such low prices.... Why Saudis need those conflicts?!
Also, if oil price going really low.....why some countries who need oil (like China) won't get a lot of oil and will preserve it in some wells or tankers and when prices will go up (and they will sooner or later) start selling "their own" oil?!


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## HaroldCrump (Jun 10, 2009)

They are probably already doing some of that...but the problem is that oil is not easy to transport and store, unlike Gold.

I believe instead what they will do (if not already started) is use this opportunity to buy O&G properties around the world.
There is quite a firesale going on right now in all O&G regions.
They will simply swoon in like vultures and buy out O&G properties pennies on the dollar.

Of course they won't buy anything in Canada, because we have a policy preventing sales to sovereign corporations.


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## GOB (Feb 15, 2011)

etfstrader said:


> I read the financial news sometime last week saying that Saudis don't want to reduce their oil production mainly because they don't want to lose their customers. Keeping oil prices low like this for a period of time will put many small energy firms out of business, which means less competition later on, right? So, I guess it's a win-win situation for Saudi once demand goes up and supply goes down.


Or the big energy firms (XOM, CVE, COP, BP etc.) will buy up the shale assets for pennies on the dollar and happily resume drilling when price rebounds. Drilling can be started and stopped quite fast so it's very sensitive to demand. Saudi mag just be making the bigger companies even stronger in the long term.


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## gibor365 (Apr 1, 2011)

> Of course they won't buy anything in Canada, because we have a policy preventing sales to sovereign corporations.


 I think it's only applicable to medium-large canadian companies...as far as I remember that was a new policy after sell of DAY to Pertochina and some others...but they still can buy small ones... 
P.S> EGL.UN is planning to buy now, after they sold some assets in summer... Now they cannot buy anything in canada, but after voting on Dec 15, they can....



> ...but the problem is that oil is not easy to transport


 They can use oil tankers "_The size classes range from inland or coastal tankers of a few thousand metric tons of deadweight (DWT) to the mammoth ultra large crude carriers (ULCCs) of 550,000 DWT_. "
and I don't think oil has expiry date like beer  more likely like whisky (longer hold -> more expensive)


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## HaroldCrump (Jun 10, 2009)

gibor said:


> I don't think oil has expiry date like beer more likely like whisky (longer hold -> more expensive)


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## Chris L (Nov 16, 2011)

Pure supply and demand...Harold?

http://www.theglobeandmail.com/repo...il-slide-beyond-fundamentals/article22076665/

- Oil producers group OPEC can ride out a slump in oil prices and keep output unchanged, its head said on Sunday, arguing market weakness did not reflect supply and demand fundamentals and could have been driven by speculators.

- But Mr. Badri suggested the crude price fall had been overdone. “The fundamentals should not lead to this dramatic reduction (in price),” he said in Arabic through an English interpreter.

- OPEC had no target price for oil, Mr. Badri said in a reiteration of policy, and urged Gulf states to continue investing in exploration and production, saying the United States would continue to rely on Middle East crude for many years.

- Mr. Badri said OPEC sought a price level that was suitable and satisfactory both for consumers and producers, but did not specify a figure. The OPEC chief also said November’s decision was not aimed at any other oil producer, rebutting suggestions it was intended to either undermine the economics of U.S. shale oil production or weaken rival powers closer to home.

- “Some people say this decision was directed at the United States and shale oil. All of this is incorrect. Some also say it was directed at Iran and Russia. This also is incorrect,” he said.

- However Saudi Arabia’s oil minister Ali al-Naimi had told last month’s OPEC meeting the organization must combat the U.S. shale oil boom, arguing for maintaining output to depress prices and undermine the profitability of North American producers, said a source who was briefed by a non-Gulf OPEC minister.

Thoughts? Still US drive to Russian collapse?

How about increased supply driven by speculation with no voluntary cuts? I buy that one....not the Russian explanation.

Oil will be back to $80 in the near term and settle at $100 for the long term.


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## HaroldCrump (Jun 10, 2009)

Chris L said:


> Pure supply and demand...Harold?


Of course, *they *will say that, won't they?
What else would you expect them to say.

Let's keep in mind that the oil market is not a fundamental demand & supply driven market.
The supply side is an oligopoly.
It is a cartel, pure and simple.

Leaving aside the geo-politics and cold war stuff (which is very important too, IMHO).



> arguing market weakness did not reflect supply and demand fundamentals and could have been driven by speculators.


Ha ! Just like Nixon said that the speculators were driving down the value of the USD when he ended the Bretton Woods convertibility system in 1971.
When in doubt...blame the "speculators".



> Thoughts? Still US drive to Russian collapse?
> How about increased supply driven by speculation with no voluntary cuts? I buy that one....not the Russian explanation.


Then pray explain why they are not cutting production, as any rational producer would.
When price falls, the natural response of suppliers is to cut production, no?
To protect the marginal rate of profit.
That is how it works in any normal, competitive market.

The fact that they are not cutting production indicates that something other than pure market pricing is at play here.
They are either trying to shake out the shale players, oil sands players, Russia/Iran/Venezuela, or whatever other purpose.
The actual purpose does not matter.

What is key is the following:
- Saudi Arabia is the swing producer
- The Saudi administration has crossed the Rubicon by saying they will not cut production, and willing to crash the price to as low as $40 if needed
- Everyone else can pretty much pound sand

You can believe any of the dozen or so theories floating around, including the official line/rhetoric.
I am not trademarking any particular theory.
But clearly the oil market is not being driven by pure demand & supply factors.



> Oil will be back to $80 in the near term and settle at $100 for the long term.


Call me the day _before_ that happens :biggrin:


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## HaroldCrump (Jun 10, 2009)

Here is an article by Reuters published this morning.
I posted similar ideas & opinion here on CMF over 1 month ago...

_*Saudi Arabia is playing chicken with its oil*_

_The kingdom has two targets in its latest oil war: it is trying to squeeze U.S. shale oil—which requires higher prices to remain competitive with conventional production—out of the market. 
More broadly, the Saudis are also punishing two rivals, Russia and Iran, for their support of Bashar al-Assad’s regime in the Syrian civil war._

As I said above, you have over a dozen theories to choose from - but none of this has to do with short term demand and supply.


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## gibor365 (Apr 1, 2011)

> As I said above, you have over a dozen theories to choose from - but none of this has to do with short term demand and supply


That's right...there are many versions, but oil demand cannot just drop 50% in 1-2 months,,,,, it's oil and nor some yellow pages books 



> it is trying to squeeze U.S. shale oil


 for me it's not logical .... I don't believe those guys can do anything to upset US ... also it's not fast to "squeeze" and "squeezing" can be only temporarily... Also, they can say many things, but if oil price drops 60-70% , Saudis revenue will be less practically by same number... and just look where is heading Saudi stock market.... Qatar has already bear market


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## Chris L (Nov 16, 2011)

Of course, I am playing devils advocate here.

And of course their reaction is perfectly logical in not reducing oil production (as any oil producer would), _we just don't understand the exact reason_.

Sure, could be any or even all of the above (probably is). But understanding the key factors that must be met before cutting production is crucial to understanding when oil will return to supply/demand.

Ultimately, it is due to supply and demand issues, driven by an unwillingness by anyone to reduce supply. You can't simply buy that OPEC doesn't want to be the guy to cut supply? I think I'm caught up in the theory that the US made OPEC not cut to harm the Russians.

What's the end game? US shuts down oil production, CAN shuts down,etc. Russia dies, then oil shoots temporarily through the roof to the benefit of Saudis.

Then US, Can, etc. come back online to reduce costs driving prices down again. That taken in the short and long term puts the Saudis in the same place relatively speaking since they, as you say, hold all the cards. In theory, they could sell half as much oil for twice as much money forever, or sell oil for 3 years (say) for half the price and twice the amount of oil to make the same amount of money. Where is the payout exactly? There isn't. But there's no disincentive either and that's what they have said. Why bother? We're fine here, you deal with it....not our problem anymore - you know, unless oil stays down too long.

If US wanted higher oil they could just create instability or someone else might.

Wish I could pick the Saudis brains, lol.


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## HaroldCrump (Jun 10, 2009)

gibor said:


> but if oil price drops 60-70% , Saudis revenue will be less practically by same number


Those "losses" will be indemnified by the US via "aid", discounted Treasuries, swap agreements, "logistical support", and other mechanisms.


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## HaroldCrump (Jun 10, 2009)

Chris L said:


> You can't simply buy that OPEC doesn't want to be the guy to cut supply? I think I'm caught up in the theory that the US made OPEC not cut to harm the Russians.


Let's be clear...not OPEC, but Saudi Arabia.
The US & Saudis have a long, and mutually vested interest relationship.
Saudi Arabia is the swing producer.

But remember that OPEC is a bunch of strange bedfellows, comprising of the likes of Iran, Iraq, Saudi Arabia, and Venezuela.
All of them have conflicting interests, loyalties, etc.

Saudi interest is aligned more closely with the US than Iran or Venezuela.
In fact, the Saudis would like nothing better than to see Iran burn, and vice versa.

Just because most of OPEC countries are Islamic does not mean their interests are aligned...quite the contrary.


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## gibor365 (Apr 1, 2011)

> If US wanted higher oil they could just create instability or someone else might.


 They just could print more dollars  when dollar goes down. commodities go up 



> Those "losses" will be indemnified by the US via "aid", discounted Treasuries, swap agreements, "logistical support", and other mechanisms.


 that's right.....but also individual investors loosing a lot of money...they should be unhappy ... even in Kingdom rulers don't want unhappy population... (this is just speculation as I have no idea if locals invest in stockmarket at all )


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## Chris L (Nov 16, 2011)

I'm curious if you've bought or will buy any stocks Harold? If so what and under what conditions.


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## CPA Candidate (Dec 15, 2013)

All I can say on this topic is I don't understand how a trade can go one way with such force for so long when oil is an input to nearly everything. WTI spot price RSI is 18%. That's basically unheard of.

This is purely a financial trader-induced oil collapse at this point. The idea that physical supply-demand forces can move the price so far down so fast is ridiculous. This is the worst aspect of financial markets run amok. The opposite of the 2008 oil price speculation explosion to $145. The traders will keep shorting as long as it keeps working and if everyone keeps thinking the same thing, it will keep working. It's just a vicious cycle that will unnecessarily harm producers and consumers eventually. What we are setting up for is oil at $150 a couple years from now. We need to move away from speculators setting the prices of commodities. These people are the worst kind of parasite.


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## Chris L (Nov 16, 2011)

I have to agree this is nuts. How many barrels of oil does it take to fill up a car? It used to cost $50 for a tank of gas - now you can buy a barrel of oil for that price. Surely refining doesn't cost that much...

Just ignore the price of oil....if you can  and buy something.


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## gibor365 (Apr 1, 2011)

> Just because most of OPEC countries are Islamic does not mean their interests are aligned...quite the contrary.


 True! Annd this is luck (or skilled political "game") of israel


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## Toronto.gal (Jan 8, 2010)

The ones suffering the least just happen to be strong allies of the West, who also just happen to fund the never-ending rise of extremists in the region.

Meanwhile, one of the other suffering amigos, has used the word 'treachery' in reference to one of the above [KSA]. 

Flimflam.


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## yyz (Aug 11, 2013)

And back on topic,Crescent Point Energy confirms no change to it's December dividend at $0.23/share same dividend since July 2008

http://crescentpointenergy.mwnewsroom.com/Files/ec/ec90d1c1-8cc5-4843-968f-04177e963135.pdf


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## gibor365 (Apr 1, 2011)

interesting what will be EGL.UN's next step


> Eagle Energy Trust ("Eagle") (TSX: EGL.UN) is pleased to announce that, at its unitholders' meeting today, Eagle's unitholders approved a special resolution to amend the investment restrictions in Eagle's Trust Indenture. This change, which is effective immediately, will enable Eagle to invest in energy assets in Canada.


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## avrex (Nov 14, 2010)

*Canadian Oil Companies UP today*

What's going on today? Why are Canadian oil companies up substantially today?
iShares S&P/TSX Capped Energy Index (XEG.TO) is up * +7.5%* at the time of writing.

It can't be just the Tailsman news. All oil companies are up significantly.


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## GOB (Feb 15, 2011)

The value of the buyout is at such at a huge premium that I think it's acting as confirmation that the sell-off is overblown.


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## gibor365 (Apr 1, 2011)

gibor said:


> interesting what will be EGL.UN's next step


It was fast 


> Eagle Energy Trust (TSX: EGL.UN) (the "Trust" or "Eagle") is pleased to announce that its newly established Canadian operating subsidiary, Eagle Energy Canada Inc., has signed a purchase and sale agreement with Spyglass Resources Corp. (the "Seller") to acquire a 50% non-operated working interest in producing petroleum properties under horizontal waterflood in the Dixonville Montney "C" oil pool located in north central Alberta (the "Dixonville Properties") for a purchase price of $100 million


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## doctrine (Sep 30, 2011)

Lots of cuts coming now. Whitecap (cancelled an increase), Bonavista, Penn West, Spyglass, Long Run, Lightstream. 

More to come, I think. Despite the recovery today, WTI is still $56 US and the Cdn dollar isn't exactly in freefall.

I think any yield above 5%, and certainly above 8%, is at risk of being cut or trimmed - WCP cancelled a planned increase despite just a 6.2% yield.


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## JDWood (Apr 3, 2009)

EGL.UN just cut their div from .0875 to .03...


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## Nordic (Dec 17, 2014)

JDWood said:


> EGL.UN just cut their div from .0875 to .03...


A good move IMO. I think they should be able to survive with an 11% yield; they were hemorrhaging money trying to maintain the .0875 distribution.


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## avrex (Nov 14, 2010)

Cdn Oil stocks are *up 18%* this week.
But if the price of oil stays at these levels, I think oil stocks are in for a rough ride in 2015.

Here's a graphic of the top 100 (world) energy companies and their Free Cash Flow.


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## My Own Advisor (Sep 24, 2012)

Time to be patient....*singing Guns N' Roses now*...just a little patience....ummmm, yeah.... !


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## londoncalling (Sep 17, 2011)

this thread likely should have been bumped sooner but it think it is still relevant.


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## treva84 (Dec 9, 2014)

Looking at the last big companies (SU, CNQ and IMO off the top of my head) that haven't cut their dividend, things may be ok in the short - medium term. 

SU's pay out ratio for 2014 was 40%; CNQ's pay out ratio for 2014 was 50%. IMO's pay out ratio was very low (13%). Of course, earnings are dropping and we'll have to see what 2015 Q4 earnings and dividends are before knowing the 2015 pay out ratios but at least the companies have some buffer built in.


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## londoncalling (Sep 17, 2011)

when I do get back into oil will likely be BP, Imperial or Shell. Not liking the premium on the US $ and not happy with the low dividend of IMO. It does make sense that a 1+% IMO div with a low payout will do much better than an unsustainable 3-7% yield. Unlikely a 50-80% drop to happen with IMO. Like it better than Husky. Undecided on Suncor and CNQ. See a long period of unlove for the oil sands.

cheers


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## treva84 (Dec 9, 2014)

londoncalling said:


> when I do get back into oil will likely be BP, Imperial or Shell. Not liking the premium on the US $ and not happy with the low dividend of IMO. It does make sense that a 1+% IMO div with a low payout will do much better than an unsustainable 3-7% yield. Unlikely a 50-80% drop to happen with IMO. Like it better than Husky. Undecided on Suncor and CNQ. See a long period of unlove for the oil sands.
> 
> cheers


The one benefit of SU over CNQ is it's an integrated player - the downstream operations benefit from the low price of oil and at least it can still make some revenue. CNQ on the other hand has to sit and wait it out.


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