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Arc Resources Earnings: The Dividend Is Safe

Published Sat, 09 Feb 2019 05:32:43 -0500 on Seeking Alpha

Arc Resources (OTCPK: AETUF) reported the Q4 earnings and released the 2018 reserves report. Despite the volatility of oil and gas prices, the company delivered strong results.
Thanks to the low-cost structure, the 6.5% dividend yield is safe at 2017 and 2018 oil and gas prices.
But despite the higher production volume, the lower costs, and the increased reserves, the market values the company at a lower price than three months ago. The discount to my estimation of intrinsic value is not important enough for me to buy shares, though. But the safe dividend can be attractive for dividend investors.

Note: All the numbers in the article are in Canadian dollars unless otherwise noted.
Q4 results
We can't start analyzing the Q4 results without a reminder of the evolution of the oil prices at the end of 2018. The graph below shows the drop in the oil prices during Q4 across the U.S. and Canadian hubs.

Source: Presentation February 2019
With this context, the company grew its production by 0.8% QoQ.

Source: Q4 press release
The table above also confirms the lower realized liquids prices in Q4 compared to the previous quarter. Thanks to the marketing diversification, the better realized natural gas prices compensated for the weakness of liquids prices. The table below shows the marketing diversification contributed by C$1.15/Mcf to the realized gas prices during Q4.

Source: Presentation February 2019
The company will keep... Read more