COP increases quarterly dividends by $12.3 million
ConocoPhillips (ticker: COP) announced that it will increase its quarterly dividend to $0.74 per share from $0.73 per share, according to the company’s press release. The dividend hike is expected to cost the company an additional $12.3 million per quarter.
“A compelling dividend is a key aspect of our value proposition to shareholders,” commented Ryan Lance, chairman and CEO of ConocoPhillips. “While this increase is more modest than in previous years, we believe it is appropriate given the lower commodity price environment.”
ConocoPhillips terminates Ensco DS-9 contract
In addition to increasing its dividend, COP said that it would be cancelling its contract with Ensco (ticker: ESV) for ESV’s DS-9 drillship. Under the terms of the contract, ConocoPhillips will pay Ensco termination fees monthly for two years equal to the operating day rate of approximately $550,000, which may be lower if Ensco reduces costs or secures a new contract, according to an Ensco press release.
COP will also be responsible for reimbursement of certain costs to Ensco incurred due to the termination of the contract. Ensco does not anticipate a material negative impact to its financial results for 2015 and 2016 due to the contract termination.
Despite the fact that the company does not expect any material negative impacts, analysts at Raymond James said they believe that the news will overshadow any positive news from Ensco’s July fleet status update.
For ConocoPhillips, the deal is a continuation of the company’s plans to cut costs, according to its press release. “Since the start of the oil and gas price downturn last year, we have moved decisively to position ConocoPhillips for lower, more volatile prices by exercising capital flexibility and reducing operating costs across our business,” said Lance. “Our decision to reduce spending in deepwater will further increase our capital flexibility and reduce expenses without impacting our growth targets.”
Drilling contracts on the chopping block for cost-cutting
Drilling contracts have been a prime target for companies looking to cut costs since the oil price downturn. Offshore projects have been in more peril due to their higher risk and tighter margins. Even international majors like Saudi Aramco have thought about cancelling offshore contracts in order to maximize capital efficiencies.
At the end of February, Aramco canceled its contract with Hercules Offshore (ticker: HERO) for its Hercules 261 effective March 27, 2015. Initially the contract was set to expire in 2019. On June 1, HERO announced an agreement to continue working with Aramco at a reduced dayrate of $67,000 per day, according to a Hercules press release.
Statoil ASA (ticker: STO) announced in November of 2014 the cancellation of its contract for the Stena Carron drill ship, costing the company $350 million in charges associated with ending the contract two years early after disappointing results from its wells off Angola, reports Bloomberg.