Company's .04 dividend protected.
" ("Newport" or the "Company") is pleased to provide shareholders and investors with an update on its quarterly dividend payment schedule as a result of recent global activity in the oil markets. As the Company's Gross Overriding Royalty ("GOR") business model relies upon the operations of Beach Energy Ltd ("Beach") in Australia, the Company is also providing a summary of a news release made by Beach dated March 27th, 2020.
The economic shut down from COVID-19 has resulted in a reduction in demand for crude oil and petroleum products worldwide. Also, failure of the OPEC + countries to agree on a reduction of supply by 1.5mmbpd and the subsequent price war between Russia and Saudi Arabia has plunged the global financial markets into turmoil. Crude oil, as a global commodity, has been extremely negatively affected during the past several weeks resulting in a great deal of uncertainty in the sector.
What is already certain is that significant capex cuts are being made by most producers, with energy companies cutting and deferring costs wherever they can. At the same time oil production from North American companies is declining, bank capital substantially reduced; in some cases banks are refusing energy companies access to credit facilities that were already in place, with other companies in breach of their debt covenants. As a consequence, dividends in energy companies are being slashed or suspended. This latter point is obviously of concern to shareholders and potential investors in Newport.
As stated in a Company News release dated, February 10th, 2020, "The Company's strong balance sheet ensures that Newport has the ability to maintain regular quarterly dividend payments with a reduced likelihood that the quarterly dividend payments would be cut in any sector downturn".
That statement is still valid and Management remains confident in the Company's ability to weather the current oil price disruption. After the recent dividend payment the Company has over $6 million in the treasury, no debt, and will not need to incur any debt or sell any assets in order to remain solvent and/or to pay dividends. Furthermore, the Company is well positioned to maintain a solid balance sheet even if the oil price stays at USD$25/bbl through 2020 and 2021 without the need to raise any additional capital. This was achieved in early 2016 when the low oil price at that time was followed by a V-shaped recovery. However, with uncertainty of such a recovery in 2020, and without knowing the medium to long term economic effects of the COVID-19 pandemic, it is difficult to predict what's next for the oil sector.
The Company's ability to maintain its dividend schedule is subject to Beach continuing to produce oil and gas from their Cooper Basin operations. Beach are extremely well positioned to weather the current oil price storm. In its news release of March 27th, 2020, entitled 'Business Update', Beach make several key points relevant to Newport's 2.5% GOR. These are summarized as follows:
At the end of February 2020 Beach had AUD$151M net cash, with access to over AUD$600M in liquidity via a AUD$450M committed revolving credit facility.
Western Flank oil assets are low cost producers, with field operating costs of approximately AUD$5/bbl.
Revenues from Beach's gas business cover all their group operating and stay-in-business costs; projected FY2021 free cash flow break-even oil price is less than US$0/bbl.
Beach's actual realized oil price in January and February 2020 was AUD$100/bbl.
Beach crude oil sells at a material premium to the Brent Crude oil price and the declining Australian dollar provides a further buffer against lower US dollar oil prices.
Beach is well positioned to manage an extended period of low oil prices, as well as the impact of the Covid-19 pandemic.
While its strong balance sheet means Beach is well placed to continue growth investment, in recognizing the current downturn, it is being prudent in targeting up to a 30% deferral in FY2021 capital investment relative to its previous guidance.
Obviously, Newport's management will re-examine the Company's dividend schedule on the basis of Beach's FY2020 Financial Results and any revised guidance. At the present time shareholders should be aware that Newport can support the current quarterly dividend schedule, and Beach is in an incredibly strong position to handle the current market disruption."
