Published Fri, 24 Apr 2020 11:40:27 -0400 on Seeking Alpha
The dividend and management salaries are maintained.
Cash flow to support that dividend will likely be absent.
Competitors like Murphy Oil and Occidental have cut salaries and the dividend.
Delaying necessary cost and activity cutting is similar to operating with high costs.
The current strategy is not conservative at a time when risk needs to be minimized.
Management of ConocoPhillips (COP) still refuses to accept the reality of a very rough second quarter. Despite the plunge of oil prices, they are stubbornly clinging to the importance of that dividend. There is an excellent chance that cash flow has been decimated, if it even remains at all. Yet the company insists upon using precious cash and maybe even some of the credit line to maintain something that many competitors do not prioritize in the current situation.
The sad part about this is that ConocoPhillips should be using the dividend to distribute profits. But the record losses from previous years wiped out average profitability for some time. By the time the 2017 annual report was issued, the company had lost 9 billion for the 3 years ending in 2017. Therefore, the company had a lot to make up for.
Instead, management began a campaign to reduce debt and pay increasing dividends to shareholders. The result has been declining production as those sales of various leases and projects overwhelmed any production increases.
Now, the price of oil is hitting new lows almost daily. The cash flow is rapidly drying up. While many in the industry announce salary cuts and dividend cuts to preserve cash, this management is going with half measures to indicate to the market they will spend their cash reserves. But that strategy could end with some very bloody adjustments should there be some hiccups and delays in the coming recovery.
The government, as usual, is paying little attention to sound economics and a lot of attention to politics. That process could cause some whiplash to the oil and gas... Read more
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