Back in January, the panic surrounding the energy space and specifically the collapse in industry cash flows as a result of the collapse in oil prices, peaked when one after another company announced they would halt dividend payments and all other distributions to shareholders to conserve cash, culminating with the dramatic announcement on January 30 when one of the giants in the space, energy major Chevron, suspended its stock buybacks.
Subsequently, oil experienced a brief oily (but dead) cat bounce, with WTI and Brent both making it briefly into the $60 price range and have since resumed their decline with WTI sliding back under $50 yesterday, and as a result all the attention is once again back on energy companies.
And as if to confirm just that, earlier today one of Icahn's favorite energy names (you won't find him tweeting about this one much thought) Chesapeake Energy, the second-largest US natural gas producer, announced it too is now scrambling to conserve cash (in this case $240 million per year) by suspending its $0.35/share dividend payment.
From the press release:
Due to the current commodity price environment for oil, natural gas and natural gas liquids, and the resulting reduction in capital available to invest in its high-quality assets, Chesapeake Energy will eliminate its common dividend effective 2015 third quarter and redirect the cash into its 2016 capital program to maximize the return available to its shareholders.
Doug Lawler, Chesapeake’s Chief Executive Officer, commented “We received approval from our Board of Directors to eliminate the common stock dividend of $0.35 per share annually, which is applicable to the 2015 third quarter. We believe this decision is prudent as we continue to invest and redirect as much capital as possible into our world-class assets. The elimination of the common stock dividend will save approximately $240 million annually. This, along with the redemption of the preferred shares in our CHK Cleveland Tonkawa subsidiary, is part of a broader disciplined approach that began two years ago to decrease the company’s financial complexity and increase our liquidity. The company’s liquidity position remains extremely strong with more than $2 billion of unrestricted cash on our balance sheet and an undrawn $4 billion revolving credit facility as of June 30, 2015."
Should the slide in energy prices accelerate once more and return to January levels, the "extremely strong" liquidity position won't last very long.
In the meantime, we eagerly await Carl Icahn's tweet announcing he has sold all his shares in CHK (of which he is the largest holder with 11% of the stock). After all, without a dividend and certainly without stock buybacks, there is not a single catalyst (and for Icahn it's just those two) that make the company an attractive holding.
Confirmation of Icahn's liquidation would add insult to violent injury for CHK shareholders who have already seen the stock price tumble some 6.5% this morning to the lowest price since July 2003.