Crescent Point Energy Corp. (TSX:CPG)(NYSE:CPG) has rebounded nearly 40% since the middle of December. This is impressive considering the fact that oil prices continue to hit new lows on each subsequent plunge.
Crescent Point is standing firm on its dividend and that is providing support for the stock. With markets being so volatile, investor confidence means everything, and Crescent Point has done a good job of convincing the market that it can generate enough free cash flow to maintain the healthy payout. Now, the news is out that some insiders are dumping the stock, and this is raising eyebrows in the market.
There is good reason to be concerned. Some companies in the patch are already slashing payouts and capital expenditures for a second time, and Crescent Point’s dividend now yields about 9%.
A recent analysis by INK Research uncovered the insider selling. During the month of January, four employees at Crescent Point sold a total of $1 million worth of shares in the open market. Insider activity is normal and you often see a mix of buying and selling throughout the year, but in the past four weeks, all the action was liquidation.
This could simply be normal portfolio management and the dollar value certainly isn’t substantial. But investors have to watch these trends carefully, especially when the company is telling the market that things are all good in a very volatile environment.
How’s the company doing?
Crescent Point is one of the energy giants that will probably come out of the crisis with a larger and stronger portfolio. In the next few months, highly leveraged oil companies will need to sell assets to pay their bills and Crescent Point is expected to be an active buyer. The company is already the industry’s most acquisitive player, and management has a very good track record of picking up strategic properties.
Crescent Point recently announced a 28% reduction in capital spending for 2015. The company expects this year’s production to be 153,000 barrels of oil equivalents (boe) per day, which is only 2,000 boe/d less than the previous forecast. The company owns some of the best assets in the industry, and deploys its capital very efficiently.
The dividend is the big question mark for the market, even after the company firmly stated that the payout is safe. About half of the company’s production is hedged above $90 per barrel for the first half of 2015. This should be adequate to sustain the payout through the end of the year, but oil prices will have to improve by the fourth quarter to ensure the distribution stays in place for 2016.
Right now, I suspect the cash saved from the capital cutbacks will be used to boost the acquisition war chest.
Should investors be concerned?
Any time we see insider action that is so lopsided, we need to step back and ask ourselves why this is happening. Based on the information that is publicly available, there doesn’t seem to be any major red flags.
For the moment, the company is in a strong position to ride out the slump. If you already own the stock, there isn’t much sense in selling now. New investors might want to wait to see if the market serves up a better entry point.
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