November 5, 2014 / 1:18 PM / 4 years ago

UPDATE 2-Penn West says low oil prices no threat to dividend

(Updates with detail and comment on dividend payout in first seven paragraphs; updates shares.)

By Scott Haggett and Darshana Sankararaman

CALGARY, Alberta, Nov 5 (Reuters) - Penn West Petroleum Ltd , one of Canada’s largest conventional oil producers, said on Wednesday it can pay its dividend and fund its capital program even as falling oil prices cut into profits.

The company, which on Wednesday reported a surprise quarterly loss compared with a year-earlier profit, moved to reassure investors that the 14 Canadian cent per share quarterly payout is safe, even as its declining share price pushes its dividend yield above 10 percent.

“This has raised some concerns among some of our key stakeholders, including the analyst community and shareholders, about our ability to sustain our dividend,” David Dyck, the company’s chief financial officer, said on a conference call. “I can reiterate that the company remains confident in its ability to fund its capital expenditure programs and continue to pay a dividend.”

Global crude prices have slipped by about 25 percent since touching a high of $115 in June, hurt by excess supply, including from North American shale fields, and weak demand from China and Europe. Natural gas prices have also been depressed due to a supply glut in North America.

Still, Dyck said Penn West’s annual C$225 million ($197.7 million) outlay for dividends represents just a quarter of the company’s expected cash flow in 2015, a sum the company sees as manageable.

The company said it expects a C$840 million capital budget in 2015, an amount it can adjust in the second half of the year should oil prices weaken further.

Penn West shares were up 5.8 percent to C$4.91 by midday on the Toronto Stock Exchange.

Penn West posted a net loss of C$15 million, or 3 Canadian cents per share, compared with a profit of C$34 million, or 7 Canadian cents, a year earlier, hurt by a drop in production and weaker oil prices.

The company’s funds flow, an important measure of its ability to pay for new projects and drilling, fell 22 percent to C$231 million, or 47 Canadian cents per share, from C$296 million, or 61 Canadian cents.

Gross revenue fell by a fourth to C$584 million in the third quarter ended Sept. 30, as production fell 25 percent to 100,839 barrels of oil equivalent per day (boepd).

Penn West said on Wednesday that average selling prices for light oil and natural gas liquids fell 5.3 percent to $87.49 per barrel in the quarter, while average prices for heavy oil fell 14 percent to $72.38 per barrel.

Penn West reiterated its 2014 production forecast of 101,000-106,000 boepd, and said it expected 2015 production to average 95,000 to 105,000 boepd.

The company said in September it was working to improve internal controls after a series of accounting errors misclassified nearly C$300 million in expenses. (1 US dollar = 1.1384 Canadian dollar) (Reporting By Scott Haggett and Darshana Sankararaman in Bangalore; Editing by Sriraj Kalluvila, Ted Kerr and Alan Crosby)

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