From September 2018, the Canadian energy sector has faced unprecedented discounts for its crude products that have had major impacts on the industry, the province and the country. These discounts are a result of crude inventory builds related to American refinery maintenance shutdowns and Canada’s lack of access to international markets outside of the United States. More recently, broader industry sentiment has been affected by concerns of increasing global supply, particularly in the United States, which has pushed West Texas Intermediate (‘WTI’) down nearly $10 USD per barrel since the end of October.
The recent decisions by the Alberta Government to instate mandatory production cuts and purchase additional transport-by-rail capacity are positive steps to alleviate negative pressure on Canadian pricing. However, concerns regarding continued volatility, commodity price pressure and political uncertainty over the coming months remain high. While Granite expects improvement in Canadian oil pricing through the first half of 2019, the Company also believes it is critical to take prudent, decisive steps to maximize the strength and flexibility of the Company over the long-term. To this end, management and the Board of Directors of Granite have decided to suspend the payment of dividends effective December, 2018. The November 2018 dividend, payable to shareholders of record on November 30, 2018, will be paid in the normal course on December 14, 2018.
Granite views its dividend as a valuable component to its business strategy and stakeholders, and is committed to its reinstatement when prices warrant and a more balanced supply-demand picture improves industry stability. In the interim, the Company will redirect this capital to debt repayment to ensure preservation of the Company’s balance sheet and further improve Granite’s strength going forward.
In the first quarter of 2019, Granite has 800 bbl/d of oil hedged at an average price of approximately $85.85 CAD compared to a fourth-quarter 2018 average of 1200 bbl/d at $72.68 CAD (assumes an exchange rate of $0.77 CAD/USD). The Company is also receiving improved pricing relative to WCS market prices as a result of its direct-to-refinery sales agreement. This agreement has the added benefit of ensuring the Company’s access-to-market when many producers are facing increased pipeline apportionment and associated pricing risks.
Granite continues to position itself to take advantage of more positive market conditions. The Company has industry-leading capital efficiencies and operating costs, which in depressed price environments will out-perform peers. Granite also currently has approximately 200 bbl/d of oil production shut-in which is being re-pressurized by the Company’s EOR scheme. This production can be brought on-stream quickly, when appropriate, to take advantage of improved prices for no incremental capital. The Company has the flexibility to act quickly and will adjust its capital program and allocation of free cash flow accordingly to maximize shareholder value.
Management and the Board would like to thank the employees and shareholders of Granite for their ongoing commitment to the Company. We will continue to manage these challenging times to ensure the Company’s shareholders benefit over the long-term.
For further information, please contact Michael Kabanuk, President & CEO, by telephone at (587) 349-9123, Devon Griffiths, COO, by telephone at (587) 349-9120, or Tyler Klatt, V.P. Exploration, by telephone at (587) 349-9125.