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Dividend Coverage Roundup: Oil & Gas Production To FY 2018

|About: Canadian Natural Resources Limited (CNQ), PTR, SSL

This report examines the capacity of oil and gas producers to cover dividends and debt service to FY 2018.

The firms reviewed are CNQ, PTR, and SSL (SIC 1311) with a combined market cap of about $140B.

Apart from SSL, net free cash flow and revenue growth range between breakeven to positive; also see qualifications.

Sustained coverage of financing obligations may rely on some form of monetary easing due to debt loads.

Tabular Results and Interpretation

The table below shows the results for Canadian Natural Resources (CNQ) and PetroChina (PTR) to FYE 12/31/18 and Sasol (SSL) to FYE 6/30/18, followed by a quick interpretation of each category of analysis:

Dividend Coverage: The coverage variable is NFCF (net free cash flow as a percentage of annual company revenues). Positive (negative) values suggest enough (inadequate) cushion to cover dividends. A figure of zero suggests breakeven coverage.

Deviations (NFCF, Revenue Growth*; latest FY vs. prior): Negative values suggest a recent (1-year) worsening because the latest fiscal year’s value has moved below the prior period central tendency. * Zero or near-zero values suggest that the latest values are in line with historical.

Shifting Centrality (NFCF, Revenue Growth; 3-year): Here the baseline for a shift=1, not zero. Smaller values suggest secular deterioration. This category identifies any shift of each company’s own “core” performance* over the latest 3 years.

Coverage 2 (Dividends+Debt Service DDS): Positive (negative) values suggest an adequate (inadequate) cushion to cover DDS. The coverage variable NFCF is compared to the sum of dividends and debt service* (abbreviated DDS or d+ and may also be termed financing obligations).

(*) Notes: Revenue growth is year on year (YoY) percentage change. Debt service is the sum of principal and interest payments (which in some cases may be estimated), The basis for this analysis is spatial, where the central tendency or “core” may also be referred to as “spatial centrality” or simply centrality.

For any qualifications to the analysis, see the notes further below; refer to the separate post titled Dividend Coverage Roundup: Background Notes referenced in the Author’s page for methodological and other details.

Comparative Overview in Charts

The following charts display the data from the table above. Note that spatial centrality is also shown either by a zero (for Charts 1, 2, 3 and 6), or the figure 1 (for Charts 4 and 5).

Chart 1. Dividend Coverage. Dividend coverage may not be comparable across firms as dividends may vary significantly; for some firms the amounts can be negligible. For a more comprehensive estimate of financing obligations (dividends and debt service together), see Chart 6 and qualifications below.

Chart 2 and 3. Deviations (from Prior FY Centrality).

NFCF. Apart from SSL, the most recent fiscal year, net free cash flow NFCF exceeds the firms’ own prior centrality.

REVG. As of the most recent fiscal year, revenue growth for CNQ and PTR exceeds their historical prior centrality while SSL dipped slightly below breakeven.

Charts 4 and 5. Shifting Centrality (3-year)

NFCF. To the most recent fiscal year, net free cash flow either remains above or in line with its own historical centrality for CNQ and PTR, while SSL’s net free cash flow has shifted downwards over the 3-year period.

REVG. CNQ and PTR have slightly exceeded or maintained their core of revenue growth, while SSL has shifted downwards to a greater extent over the period to its most recent fiscal year end.

Chart 6. Dividends + Debt Service

A more comprehensive analysis of coverage requires examination of debt service, detailed in this section. Debt Service is the sum of principal and interest on debt obligations. Adding debt service onto dividends may result in significantly different conclusions about dividend coverage capacity since both compete for limited company funds, with debt service typically being contractual. The chart below shows the relative performance of the firms when coverage is estimated for dividends and debt service combined; the centrality is represented by zero. All firms appear to fall considerably short in coverage capacity; see note and qualifications below for further details.

Note: CNQ’s current portion of long-term debt as of FY 2018 was significantly lower than for its scheduled future maturities beyond FY 2018: In particular, debt maturities of 1476 for FY 2018 rise to 5996 for FY 2019.To ignore this large discrepancy in the subsequent fiscal year arguably understates the extent of the company’s debt obligations. Therefore, an intermediate estimate averaging the two fiscal years’ debt maturity figures (FY 2018 and FY 2019) was used instead for a more representative debt service figure.


  1. Chart 1. Dividend coverage may not be comparable across firms: For example, the ratio of dividends to revenues for CNQ, PTR and SSL as of FY 2018 was approximately 7%, 1.8% and nearly zero, respectively.
  2. The basis for comparison between firms is less uniform due to the 6-month lag between the fiscal year ends of SSL and the other two firms. Also note that the financial information for SSL is for FY 2018, not FY 2019 (see next comment regarding the delay).
  3. SSL’s financial statements are typically released in August. For fiscal year ending 6/30/19, there has been a delay as stated in the company’s SEC Form 6-K Report of Foreign Private Issuer. According to the report, the financial statements for FY 2019 are expected to be released by the end of October 2019.
  4. See the Note with Chart 6 regarding CNQ’s current portion estimate.
  5. Due to the author’s incomplete dataset for CNQ, there was a single missing observation for FY 2007 revenue growth. Therefore, an estimate was generated from the average of all subsequent fiscal years to FY 2018.

Methodology and other details are consolidated in a separate post titled Dividend Coverage Roundup: Background Notes, referenced in the Author’s page. For more recent analyses, a default assumption of fat tails is generally made in favor of higher-ranking distributions for reasons detailed in the methodology.

Financial Visualizations. For selected 3D stylized and other sketches of underlying theoretical models of selected companies, see the author’s page for links; given the qualifications and shortcomings, at the very least it is hoped that such models might be appreciated for their aesthetic value.

The author may also hold positions in securities of companies, including through ETFs, that are covered herein. The discussion and any visuals may contain significant errors, are subject to revisions and are provided 'as is' solely for informational purposes, not for trading or investment advice. This preliminary analysis is exploratory; no claims are made as to the validity of data, assumptions, theoretical models and methodologies; results may be based on prior data that do not reflect the most current market events.