Shares in Pengrowth Energy Corp. were down almost six per cent Friday after the oil and gas producer announced that it is slashing its monthly dividend by 43 per cent starting next month.
The Calgary-based company said it was making the move to "safeguard Pengrowth's financial and balance sheet strength" due to weakness in both spot and forward commodity prices and "increased uncertainty in the capital and property markets."
As a result, Pengrowth's monthly dividend will fall to four cents per share beginning with the Aug. 15 payment.
It had previously announced the payment for this month would be seven cents per share, payable July 15 to shareholders of record as of June 22.
"Our first move in this challenging environment was to reduce capital expenditures, which we did with the NAL acquisition,' president and CEO Derek Evans said in statement accompanying the announcement.
"The reduction of the dividend, in conjunction with the capital expenditure reduction and our ongoing hedging programs, should enhance our financial flexibility, . . ." he said.
Evans was referring to a $200-million pro forma capital expenditure reduction that coincided with the $1.9-billion purchase of NAL Energy Corp. announced March 23, an acquisition that was not to the liking of some analysts.
Pengrowth an intermediate producer
Morningstar analyst Robert Bellinski said at the time that the NAL takeover "looks like a really bad deal for existing Pengrowth shareholders" and that he would have preferred to have seen the company sell off assets rather than pile on new ones.
"I think that Pengrowth is a pretty mediocre producer with pretty mediocre assets to start with and they've got too many of them," he said.
"They've got so much on their plate that I don't think they have the bandwidth to operate all of them efficiently. To add all these assets to that, I think doesn't help the situation."
Bellinski note that if Pengrowth had good opportunities in the first place "and they weren't paying such a high dividend, they'd have plenty of capital to start with, and plenty of opportunities to play that at a better return."
Pengrowth is an intermediate Canadian producer of oil and natural gas, headquartered in Calgary and focused on the development of conventional and unconventional resource plays in Western Canada
On the Toronto Stock Exchange, Pengrowth shares closed down 21 cents, or 3.18 per cent, at $6.40 Friday.