Spyglass Ditches The Dividend

| About: Spyglass Resources (SGLRF)
This article is now exclusive for PRO subscribers.

Summary

Spyglass suspends its dividend.

Sold a 50% stake in its Dixonville Assets for $100M.

Filed for the option to buyback 12.4 million shares.

Spyglass Resources (OTC:SGLRF) just announced a whole bunch of things. Among them was that it will be cutting the dividend it has been paying since inception. For the longest time Spyglass had an extremely handsome yield and this has always been a main component that drew investors to the company. Over the summer the company finally cut it from C$.0225 to C$.015, as the company's performance has never been strong enough to justify paying out so much. On December 16th, however, the company finally suspended the dividend. Citing the oil environment the company said it needs to conserve cash. Although bad for investors that were in the company for the yield, which at the time of suspension was over 60%, this is a good thing for the company. In hindsight it should have been done a long time ago probably, but this should definitely aid in its survival through the current price dilemma.

Along with the announcement of the suspension, the company also announced a significant asset sale. The company is selling a 50% non-op stake in operations at its Dixionville land to Eagle Energy Trust. Spyglass will net C$100M from it, which it plans to use to pay down its debt and it claims it will reduce interest expenses by C$5 million annually. Following the closing of the transaction and payment of the debt the company expects to have a net debt of C$195 million. This is a substantial improvement from earlier in the year when they had over C$300 million in debt.

The company's plan is to continue to seek non-core asset sales into 2015 to continue to pay down debt. Dixionville is actually one of the core areas of the company but Spyglass was happy to retain 50% WI in the field as it is a good producer of cash flow. Other than Dixionville the company holds a substantial land position throughout Alberta. If the company wants to survive the downfall and ultimately succeed long term, it needs to dispose of more assets. It has a very large asset portfolio, which at this point the company is just sitting on most of it. Every little bit helps, and any sale makes the long term prospects more attractive.

(Source: Spyglass website)

Also in the news release was the development plan for 2015. The capex budget calls for just C$26 million, which will be mostly concentrated on its southern Alberta operations. It did say that it will reevaluate this as the year progresses in terms of commodity prices, so if oil does make a comeback we should see them increase the budget.

The last bit of news would be the fact that the company has filed with the Toronto Exchange to have the option to buy back shares. The filing allows the company to buy back 12.4 million (10%) of its common shares. Although this filing does not mean it has to buy shares back, it means the company does see it as a strong possibility. Obviously it would be a great move to buy the shares back at such cheap levels, with a recent close price of C$.43. At that price the company would only need about C$5.4 million to get all allowed shares. It would obviously vary, though, as the company would only be able to buy 78,000 shares in the trading day if they choose to do so.

In conclusion, Spyglass remains a risky play with oil prices depressed so far. Suspending the dividend is clearly a strong move by the company as well as selling some of its assets. One thing to consider would be the fact that a company with a current market cap of $50M just sold a 50% WI in just one its properties for $100 million. Clearly the fear is that the company will not survive in the long term but this fear I believe can be quelled by selling off more of its quite extensive asset portfolio. At this point Spyglass is a very speculative play, and an investment in the company could end up lucrative, especially if oil rebounds strong in the next few months.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.