What: For the second time this week, Baytex Energy Corp's (NYSE:BTE) stock price endured a double-digit drop. This time the drop was less oil price related, coming instead after the company announced it was slashing capex and suspending its dividend. The announcement left many investors with little reason to continue holding, as the dividend was their reason for investing in the company.
So what: Baytex Energy is just one of a growing number of oil companies to announce that they have decided to suspend dividend payments indefinitely in light of the continued weakness in oil prices. It will instead use that cash to bolster its balance sheet, and will reinstate a dividend when commodity prices recover enough to support it.
Further, the company also announced that it was slashing its 2016 capex by 25% below its 2015 level, which it now expects to come in at the low end of its $500 million to $575 million guidance range. As a result of these spending levels, the company expects 2015 production to average 84,000-86,000 BOE/d, which represents a lowering of the top end of its guidance range of 84,000-88,000 BOE/d. Further, given its estimated 2016 capex budget of $350 million to $400 million, it expects that production next year will be relatively flat compared to its 2015 exit rate.
Now what: Clearly, Baytex Energy is hunkering down for what it believes to be a scenario where oil prices stay lower for longer. That view is forcing the company to make the really tough decision to suspend dividend payments and abandon growth spending. In its view, it's better to be safe than sorry, as no one really knows the depth nor the length of this downturn.
Matt DiLallo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.